Glossary

The excess return of the fund relative to the return of the benchmark index on a risk-adjusted basis.

The process which identifies and exploits situations where one security (or portfolio of securities) has similar risk characteristics to, but a more attractive price than, a second security (or portfolio of securities).

A measure of non diversifiable or market risk.

A publicly traded long term debt security which promises to pay a fixed amount of interest over a specified period of time and repay a fixed amount of principal at maturity.

The statistical measure of any relationship between a series of numbers. Two series of numbers that move in the same direction are considered to be positively correlated. If they move in the opposite direction, they are negatively correlated. Should there be no relationship in the movement, the two series of numbers are uncorrelated.

The feature of a bond that defines the amount of annual interest income.

Grades that designate investment quality and are assigned to a bond issue by ratings agencies.

The risk that is caused by the varying exchange rates between two currencies.

The inclusion of a number of different assets in a portfolio, with the goal of increasing returns or minimising risk. Diversification strives to smooth out risk events in a portfolio so that the positive performance of some investments neutralises the poor performance of others.

A measure of bond price volatility which captures both price and reinvestment risks and which is used to indicate how a bond will react to different interest rate environments.

Bonds whose coupon and/or principal is adjusted, or indexed to, the rate of inflation prevailing over the period the coupon or principal is outstanding.

The risk that future changes in the rate of inflation will adversely impact the value of a nominal bond.

The chance that fluctuations in interest rates will adversely affect an investment's value.

The range of securities eligible for inclusion in an investment portfolio.

The ability of an investment to be converted into cash quickly and with little or no loss in value.

The risk of not being able to liquidate an investment conveniently and at a reasonable price.

Asset backed security that is secured by a mortgage or a collection of mortgages.

The date on which a bond matures and the principal must be repaid.

Bonds which pay a coupon and principal based purely on the specified coupon rate and the original face value, i.e. not adjusted for inflation or movements in any other index.

On a bond, the amount of capital that must be paid at maturity.

The difference between the performance of a position or a portfolio and the performance of a benchmark.

A measure of the distribution of returns for a given investment or index. Volatility can either be measured by using the standard deviation or variance between returns from that same investment or index. Typically, the higher the volatility, the riskier the security.

The income return on an investment. This refers to the interest or dividends received from an investment and is usually expressed annually as a percentage based on the investment's cost, its current market value or its face value.

A graph that represents the relationship between a bond's term to maturity and its yield at a given point in time. It plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The curve is closely monitored as it gives an indication of future interest rate changes and economic activity.

A normal yield curve indicates that longer maturity bonds have a higher yield compared to shorter maturity bonds. This indicates the risk associated with time.

An inverted yield curve indicates that shorter term bonds have higher yields than longer maturity bonds.

A flat yield curve indicates that bond yields are very close to each other.

It is important to note that the greater the slope, the greater the gap between short and long term rates.