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ETF Portfolio Management

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ETF Portfolio Management

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Definitions

Absolute Return Strategies – investment portfolios that seek to deliver positive returns in both up and down market environments.

Alpha – a measure of excess return, or value added on a risk-adjusted basis, versus the benchmark index. A positive alpha of 1.0 means the investment has outperformed its benchmark index by 1%.

Beta –a measure of the volatility, or risk, of an investment versus the market as a whole. A beta of 1 suggests that an investment’s price may move in synch with the overall market.

Correlation and Correlation Coefficient – correlation measures the degree that two investments move in relation to each other. The correlation coefficient ranges between -1 and +1. Two investments that move in lockstep would have correlation coefficient of +1.

Dow Jones Credit Suisse Hedge Fund Index (HFI) – includes approximately 8,000 funds that each have a minimum of $50mm under management, a 12-month track record, and audited financial statements. The index is asset weighted and excludes separate accounts.

Exchange-Traded Funds (ETFs) – typically described as index funds that trade like stocks. When employed passively, index ETFs may offer investors low costs and tax efficiency.

Drawdown – the percentage peak-to-trough decline of an investment measured on a month-end basis.

Investable Benchmarks – a strategic range of diversified portfolios of passive exchange-traded funds (ETFs) designed to show investors core multi-asset class diversification.

Rules-Based Strategy – an investment strategy based on various pre-determined investment rules. Indexing is a passive form of rules-based investing while quantitative strategies would be an active example. Fundamental discretionary strategies differ in that they may be influenced by investor opinion and/or emotion to a greater degree.

S&P 500 Index – a passive index of common stocks that represents the U.S. stock market. The index is mainly comprised of large cap companies and reflects roughly two-thirds of the total domestic stock market value.

Sharpe Ratio – a measure of risk-adjusted performance in order to differentiate performance between portfolio management skill and excess risk. A larger Sharpe ratio indicates better risk-adjusted performance.

Standard Deviation – the dispersion of a set of data from its mean which measures the volatility or risk of an investment. The higher the volatility of the investment returns, the higher the standard deviation.

Trend Following – an intensely active rules-based investment strategy that reacts to existing trends in the price and volatility of securities across multiple asset classes.

Value Added Monthly Index (VAMI) – a value or a chart reflecting the monthly growth of a hypothetical $1,000 in a given investment over time.

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