Glossary of Terms

Investment strategies that are typically created by investing in assets to provide returns which are independent of public capital market directions.

An investment strategy used by management with the goal of outperforming an industry benchmark or index.

In relation to pension plans, these assumptions (or estimates) are made for the purposes of calculating benefits, taking into account variables including life expectancy, return on investments, interest rates, and compensation. By calculating the possible payout of benefits, the actuary can determine what contributions are required and what amount the pension plan’s sponsor should set aside as readily available cash.

A professional advisor or entity whose responsibility is to evaluate present and future pension liabilities in order to determine the financial condition of a pension plan, by following recognized actuarial methods as established by the Canadian Institute of Actuaries.

A professional advisor or entity whose responsibility is to evaluate present and future pension liabilities in order to determine the financial condition of a pension plan, by following recognized actuarial methods as established by the Canadian Institute of Actuaries.

The value-added investment performance of a security or portfolio above the benchmark index. (See BETA)

Investments which are expected to have only modest correlations with traditional public equity or fixed income investments. These investments are expected to provide portfolio diversification benefits and typically include real estate, infrastructure, absolute return strategies and private equity investments.

The return of an investment for a given period of less than one year that is calculated as if the rate were for a full year.

The return of an investment over a 12-month period.

An investment of economic value owned by an investor. For example, public stocks, bonds, and real estate investments would all be considered financial assets.

The proportion of each investment asset class, such as equities, bonds, short-term assets, etc., that could comprise an investment portfolio.

A group of investment assets with similar expected performance and risk characteristics.

Financial statements that bear the report of independent auditors attesting to the financial statements’ fair presentation and compliance with generally accepted accounting principles.

One basis point is equal to 1/100th of a percent expressed as 0.01%. 100 basis points is equal to 1%.

A time when stocks are decreasing in value and the investment outlook is negative.

An industry standard against which rates of return can be measured, such as equity and bond market indices developed by stock exchanges and investment dealers.

The person or persons who receive benefits from a trust, will or insurance policy.

A payment or gift made by an employer, an estate or an insurance company.

The rate that is calculated for the accumulation of pension benefits.

A measure of the volatility of a stock or portfolio compared to the market index. A market index has a beta of one (1). A stock or portfolio with a beta greater than one has a higher volatility than the index. Conversely, a stock or portfolio with a beta that is lower than one has a lower volatility than the market.

Happening twice a year.

Happening every two years.

Large market capitalization companies that are deemed financially sound.

An appointed or elected group of individuals that has overall responsibility for the oversight of the management of an organization. The Board of Trustees is typically the governing body of an organization and seeks to ensure the best interest of stakeholders in all types of management decisions.

Debt security that pays the investor a fixed rate of interest during the term of the loan and to return the principal or face value when the loan matures. The following are types of debt securities that can be purchased:

• government bonds (bonds sold by national, provincial/state
  and municipal governments);
• corporate bonds (bonds sold by private sector companies);
  and
• real return bonds (bonds which have a portion of their
  payment obligation tied to the rate of inflation).

(See Fixed Income)

The amount of return realized on a bond. (See Nominal Bond Yield)

An investment analysis based on a company’s details (management, finances) rather than on the economy, industry or market conditions.

A time when stocks are increasing in value and the investment outlook is favourable.

Set of documents, instructions, and procedures which enable a business to respond to accidents, disasters, emergencies, and/or threats, without any stoppage or hindrance in its key operations. Also called business resumption plan, disaster recovery plan, or recovery plan.

The market in which stocks and bonds are traded (bought and sold).

An index of stocks weighted according to their market capitalization value (number of shares outstanding multiplied by the market price).

Assets of value, of uniform quality, that are produced in large quantities by many different producers. Generally, these are basic resources and agricultural products such as iron ore, crude oil,
gasoline, natural gas, coal, ethanol, salt, sugar, coffee beans, soybeans, aluminum, rice, wheat, gold and silver.

Securities of equity ownership in a company.

Procedures undertaken at regular intervals or on an on-going basis to ensure internal and external controls and regulations are satisfied.

An indicator of inflation. CPI measures the cost of goods and services over a specific period of time. CPI is thought to frequently influence the change in interest rates.

The amount that is paid by the employer and/or the employee into a pension fund.

An increase in payments or wages that compensates for the loss of purchasing power of money due to inflation.

The customer, bank, or securities dealer with whom an investment or derivatives transaction is conducted.

The interest rate attached to a bond when it is issued.

A monthly, taxable benefit that is paid as income upon retirement or as early as the age of 60.

The difference in yield between two securities due to credit quality.

A digital (virtual) currency that operates separately from a central bank. Currency is created and spent (exchanged) through encryption techniques. An example is Bitcoin.

A total, compounded rate of return covering (generally) more than one year. For example, if a fund earns 15% in the first year, 36% in the second year and -7% in the third year, its cumulative return is 45.45%. Its annual average compound return, by comparison, is 13.3%. It is always advisable to look at the individual annual returns that make up cumulative and compound returns in making judgments about the quality and consistency of returns.

An investment taken to reduce the risk or potential loss arising from the change in the value of the currency of a foreign asset against the Canadian dollar.

A currency hedging technique aimed at protecting an investor’s international currency exposure. Currency hedges are adjusted on a frequent basis, to protect the Canadian dollar value of foreign investments.

Also called exchange rate risk (FX risk), occurs when there is a change in the value of a foreign currency in which an investment has been made against the domestic currency of the investment portfolio in which the investment is held.

The entity that holds assets in safekeeping and settles security transactions on behalf of the holder of the assets.

A pension plan in which the employer and employee contributions, and the pension benefit payments are clearly outlined by a series of rules as determined by the plan.

A pension plan in which employer and employee contributions are clearly outlined by a series of rules as determined by the plan. Pension benefit payments are typically highly contingent on the long-term investment performance of the plan.

A generic term used to describe a financial instrument or contract derived from some other asset or index, executed between two counterparties. Examples are financial futures or option contracts that may be negotiated privately or be listed on a recognized securities exchange.

The rate at which an asset’s cash flows are discounted to determine its present value. In a Pension Fund, the assumed, net investment rate of return that the Pension Fund needs to conservatively earn over the long-term. The discount rate in a Pension Fund is set by the Plan’s independent actuary and is typically found in the fund’s investment policy.

Left to a person’s discretion, freedom and authority to make decisions or choices. A discretionary investment account allows an investment manager to buy and sell securities without the client’s consent for each trade. The client can direct the trading activity as described in the investment policy.

A portfolio strategy used to reduce (diversify) investment concentration risk by investing in different assets and asset classes.

A stock (bond) payment paid by a company to its shareholders.

The detailed review and analysis of an investment opportunity to consider if it will meet investment objectives. Also, the oversight of a portfolio to ensure it complies with securities laws.

A measure of a fixed income asset’s (bond’s) price sensitivity to changes in interest rates.

Markets in countries that are considered underdeveloped and with less liquid investment environments compared to developed countries.

Investment securities that represent an ownership interest in an asset such as shares in a company or real estate.

An organized exchange where equity securities are traded, also known as stock markets.

Environmental, social and governance (ESG) issues that are considered in an effort to understand, manage and mitigate investment risks.

A unit or share of a pool of assets that trades on an organized exchange.

The market value of an asset (or liability) based on the market where the funds are traded on the date reported.

Frequently Asked Questions

A person or entity who is legally entrusted with the property (assets) of another person or group of persons (party), required to prudently place the best interests of the party above its own at all times when managing all aspects of the property/assets. Also called a “Trustee”.

The legal responsibility of a fiduciary to conduct themselves with the highest standards of integrity, honesty, independence, fairness, openness and competence when acting for or on behalf of a party. For example, a pension plan trustee holds a fiduciary duty to the pension plan and its members and beneficiaries.

An asset class comprising securities that pays a specific interest rate, such as a bond or money market instrument. They obligate the borrower to pay the owner a fixed rate of interest during the term of the loan and to return the principal or face value when the loan matures. This asset class includes:

• government bonds (bonds sold by national, provincial/state
  and municipal governments);
• corporate bonds (bonds sold by private sector companies);
  and
• real return bonds (bonds which have a portion of their
  payment obligation tied to the rate of inflation).

(See Bonds)

An assessment of a company or security based on measurable factors such as its balance sheet and income statement. (See Investment Risk)

Compares the estimates of assets to the liabilities in a pension plan to ensure the plan is funded to make all future payment obligations to retirees.

The decision framework created to help ensure a pension plan maintains a fully funded status.

A generic term which describes the ways in which rights and responsibilities are shared between various stakeholders. For corporate governance, the rights and responsibilities are generally shared between the governing board, management and shareholders. For pension plan governance, the rights and responsibilities are shared between the Plan Sponsor / Parties and the Trustee(s).

The return before fees, such as investment management fees, are deducted. (See MER)

An investment used to reduce the risk of a current investment or portfolio.

An asset that is expected to provide a return that is highly correlated to the rate of inflation. Investments in real return bonds, real estate and infrastructure are such assets.

Assets which provide essential physical facilities or services to a community or business, such as transportation, communication, sewage, water, and electric systems. They are typically long-life assets which have some type of inflation link to their investment return profile. (See Inflation-Linked)

The risk that interest rates will rise (fall) and reduce (increase) the market value of an investment.

The rate at which an investment’s future cash flows, discounted to today, equal its price. Also, a performance measure typically used in private equity, real estate and infrastructure.

The risk of potential loss, relative to the expected return, due to exposure to non-fundamental measures, such as market, credit,
counterparty, liquidity and country risks.

Parameters created to set goals, typically in an organization.

The borrowing of funds to make an investment. Leverage can increase the risk exposure in an investment.

The risk that a company will not be able to meet its obligations
without incurring significant loss.

An investment strategy which uses public equity assets to build a portfolio that is expected to provide similar long-term investment returns to Public Equity portfolios but with less risk.

An insurance policy that protects an employee from loss of income if he or she is unable to work due to illness, injury, or accident for a long period of time.

The total fee amount, expressed as a percentage of assets managed, that an investment manager charges for the management of a security or portfolio of assets. Investment results may be quoted with and /or without the MER.

The total value of a firm’s outstanding shares (market price per share multiplied by the total shares outstanding).

An investment strategy that is deployed using public equity
securities, however, is designed to provide returns independent of the direction of public equity markets. Similar to the Absolute Return Strategies.

The tendency of a security to continue to move in one direction.

The return after fees, such as investment management fees, are deducted. (See MER)

The yield on a bond determined from the amount of scheduled interest coupon payments, the maturity value, and the current trading value.

The rate of return on an investment without adjusting for inflation.

A type of rate of return on an investment that is expressed as a
percentage of the total amount invested.

A monthly payment available to seniors aged 65 and older who meet the Canadian legal status and residence requirements.

The construction of a portfolio to minimize risk while maximizing return.

An investment strategy with the goal to track an investment index’s performance.

A government act created to regulate employee pension plans.

Earnings that qualify an employee to contribute to a pension plan through deductions on their salary and contributions paid by the employer.

A fund in which multiple investors contribute assets and hold them as a group. A common example of a pooled fund is a unit trust fund.

A group of investments and financial instruments that are grouped together for specific investment purposes.

A legal document that gives someone you trust (e.g. an attorney) the right to make decisions for you if something happens and you are no longer able to look after matters on your own.

The loan rate given to the most credit worthy borrowers by commercial banks. Typically used as a measure against which other interest rates are quoted.

Equity investments in companies that are not publicly traded on a recognized stock exchange. Private equity is a type of Alternative Investment asset.

Investment assets that are not readily traded through public trading systems or exchanges.

A written authorization to act on another’s behalf to vote at a company’s annual meeting.

Equity investments in companies that are typically subject to the reporting requirements of a national regulatory body and are publicly traded on a stock exchange. This asset class includes:

• Canadian equity (Canadian companies, also called domestic
  equity); and
• international equity (companies outside of Canada,
  including the United States, Europe, and Asia).

The determination of a value of an investment by considering its non-numeric characteristics such as management strength, brand value and loyalty.

The determination of a value of an investment by considering its numeric characteristics such as revenues, earnings and margins.

The return on investment calculated by dividing the investment income and any capital received by the amount invested.

Investments in physical buildings or land holdings which typically receive regular rental payments and may be subject to longer-term value appreciation. They are typically long-life assets which have some type of inflation link to the investment return profile. (See Inflation-Linked)

The return on an investment determined by subtracting the rate of inflation from the nominal return, usually for a specific measurement period.

A retirement savings plan registered in an individual’s name. It
functions as an investment vehicle where contributions typically accumulate tax free and are taxed at the marginal rate at the time of withdrawal..

The variability of investment returns, either in absolute terms or versus a benchmark.

A series of well-defined independent risk management systems and processes within various business teams. The process typically involves the participation of a company’s Board of Directors, management, and external service providers.

The amount of risk able to be taken to achieve the investment target(s).

A contracting or slowing economic environment in which investors accept less risk and invest in less risky assets.

An optimistic economic environment in which investors will accept more risk and invest in riskier assets.

The extra yield required to compensate investors for any additional risk inherent in an investment.

The loan of securities by an investor to another party in exchange for collateral and to generate income.

Also referred to as a Target Benefit Plan. A pension plan that shares the plan’s funding costs between employer and employees based on periodic risk management considerations. Employee benefit payments may also be subject to risk management considerations.

A security that generally matures in one year or less.

A company with a market capitalization of ≤$1B. A small cap stock is considered to be more vulnerable to economic conditions and therefore greater price fluctuations than large capitalization stocks.

A nine-digit number required for an individual to work in Canada and to access government programs and benefits.

A person, group, organization, or system that affects or can be affected by an organization’s actions.

In an investment, standard deviation is a statistical measure of distribution of returns to determine an investment’s risk. A high standard deviation indicates high price fluctuation and potentially higher risk.

A legal document that outlines the investment policies and
procedures of a fund.

Refers to a process that is randomly determined. In financial markets, stochastic processes present data and predict outcomes determined by levels of unpredictability or randomness.

A portfolio strategy that sets a target asset mix to reflect an investor’s risk tolerance and to reflect the expected market conditions over a set period of time.

A strategic document that outlines an organization’s overall mission, vision, and values which helps to direct the annual business planning activities of the organization.

The identification and development of potential successors for key positions in an organization, through a systematic evaluation process and supplemental training programs.

Also known as market risk, systematic risk refers to risk that affects the entire market. (See Unsystematic Risk)

A strategy that actively adjusts the weight of individual assets in a portfolio with the goal to outperform market returns. (See Alpha)

A vehicle through which individuals who are 18 years or older may save money, tax free, throughout their lifetime.

Analysis of an investment opportunity that considers the economic outlook before looking at the industry or stock details.

The sum of the income (interest) and the capital gain on an investment.

Standard activities, methods, and procedures established to handle day-to-day or frequently occurring trading events.

A person or entity who is legally entrusted with the property (assets) of another person or group of persons (party), required to prudently place the best interests of the party above its own at all times when managing all aspects of the property/assets. Also called a “Fiduciary”.

Risk that is industry or security specific and is uncorrelated with market (systematic) risk.

The process of determining the value of an asset or security. This may involve the use of the most recent price of a publicly traded security, or a more subjective methodology used for private assets.

To have the rights to an amount of a benefit, typically an employee benefit such as stock options, profit sharing or retirement benefits.

The size and frequency of changes in an asset’s value over a short period of time.

The period of time from the first day of the current calendar or fiscal year up to the current date.