Active Management – an investment strategy that seeks to outperform the average returns of the financial markets. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
Asset Classes– major categories of financial securities. The three major asset classes are cash investments (also called cash reserves or money market instruments), bonds, and stocks.
Average Annual Total Return – the average annual profit or loss realized by an investment at the end of a specified calendar period, stated as the percentage gained or lost per dollar invested.
Bear Market – a period of time (usually months) during which measures of the stock market decline.
Benchmark – an unmanaged group of securities whose overall performance is used as a standard to measure investment performance.
Bull Market – favorable markets associated with investor optimism, economic recovery, and governmental stimulus.
Buyouts – involves the purchase of a substantial interest (typically a controlling percentage) in a company for the purpose of taking over its assets and operations. A buyout can be accomplished through the negotiation process or through a tender offer and can be accomplished with or without the use of financial leverage.
Chartered Financial Analyst (CFA) – an investment professional that has met competency standards in economics, securities valuation, portfolio management, and financial accounting as determined by the CFA Institute.
“Core” Management – an equity or fixed income management style that invests in diversified portfolios, typically using a broad index such as the S&P 500 Index or the Lehman Aggregate as the benchmark.
CUSIP Number – a numerical identification supplied by the Committee on Uniform Securities Identification Procedures for each security approved for trading in the United States. Most brokers and securities firms use this number to identify securities.
Custodian – either (a) a bank, agent, trust company, or other organization responsible for safeguarding financial assets or (b) the individual who oversees the mutual fund assets of a minor’s custodial account.
Defined Benefit Plan – PSRS/PEERS administers a defined benefit retirement plan. Benefits are based on a set formula using years of credit, age at retirement, and highest average salary for a three-year period.
Defined Contribution Plan – a type of savings plan that allows participants to make pre-tax contributions that accumulate tax-free. Contributions, plus any earnings, are not subject to state or federal taxes until withdrawn, in most cases after retirement. The amount paid is determined by the amount of contributions made and the rate of return on the investments chosen.
Duration – a measure of interest rate risk. It measures the price volatility of a bond to changes in interest rates. The greater the duration, the greater the price volatility of the bond.
Federal Home Loan Mortgage Corporation (FHLMC) – a government organization designed to create and maintain a secondary market for conventional home mortgages. The FHLMC buys and pools mortgages from federally insured financial institutions and sells them as mortgage-backed securities called “Freddie Macs.”
Federal National Mortgage Association (Fannie Mae) – a government-sponsored private corporation authorized to purchase and sell mortgages and to facilitate the orderly operation of a secondary market for home mortgages.
Fiduciary – an individual or trust institution given the duty of acting for the benefit of another.
Fiscal Year – PSRS/PEERS operates on a fiscal year calendar, which is July 1 to June 30 of the following year.
Foreign Exchange Rate – price of a unit of one country’s currency in terms of another country’s currency.
Futures Contract – a standardized, normally exchange-traded contract for future delivery of a financial or real assets.
Government National Mortgage Association (GNMA) – an agency within the U.S. Department of Housing and Urban Development that buys mortgages from lending institutions and pools them to form securities, known as “Ginnie Maes,” which are then sold to investors.
Investment Consultant – an individual, or firm, who provides investment advice for a fixed fee, a fee based upon a percentage of assets, or a fee derived from brokerage commissions. Such advice generally includes portfolio constraints analysis, performance objectives setting, asset allocation counsel and investment manager evaluation, selection and monitoring services. It may, or may not, include performance measurement services.
Lehman Aggregate Index – this index consists of a combination of the Lehman Government/Corporate Index and the Lehman Mortgage-backed Securities Index. The Lehman Aggregate is made up of over 5,000 securities.
Lehman Government/Credit Index – this index includes securities issued by the United States Government and its agencies, including quasi-federal corporations or corporate debt guaranteed by the U.S. government. Also, approximately 4,200 corporate, publicly traded debt securities that are fixed rate, non-convertible domestic debt are included.
Lehman Mortgage Index – contains 15- and 30-year fixed-rate securities. These securities are pools of mortgage loans issued by the Government National Mortgage Association (GNMA - ‘Ginnie Mae’), the Federal Home Loan Mortgage Corporation (FHLMC - ‘Freddie Mac’) and the Federal National Mortgage Association (FNMA - ‘Fannie Mae’). The Index holds approximately 600 securities.
Limited Partnerships – A partnership co-owned by a general partner and limited partner(s). The general partner manages the business operations. Limited partners have limited liability up to their investment and are not involved in daily activities.
Market Capitalization – the value of a corporation as determined by the market price of its issued and outstanding common stock. It is calculated by multiplying the number of outstanding shares by the current market price of a share.
Public Real Estate Securities – Real Estate Investment Trusts (REITs) are publicly traded real estate companies that offer investors exposure to real estate through a liquid investment. Investors lack the ability to direct investments in individual properties. REITs typically exhibit much higher return volatility (similar to equities) and a higher correlation to other assets than private real estate.
Russell 1000 Growth Index – contains those Russell 1000 Index securities with a greater-than-average growth orientation. These companies generally tend to have higher price-to-book and price-earnings ratios, lower dividend yields and higher forecasted growth values than the value universe.
Russell 1000 Value Index – contains those Russell 1000 Index securities with a less-than-average growth orientation. Securities in this index generally have lower price-to-book and price-earnings ratios, higher dividend yields and lower forecasted growth values than the more growth-oriented securities in the Russell 1000 Growth Index.
Russell 2000 Index – a market-capitalization-weighted index made up of the 2,000 smallest U.S. companies in the Russell 3000.
Russell 3000 Index – a market-capitalization-weighted index made up of the 3,000 largest U.S. stocks, which represent about 98% of the U.S. equity market.
S&P 500 Index – is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Standard Deviation – a measure of the dispersion of outcomes around the mean (or expected value), used to measure total risk. It is the square root of the variance.
Ten Largest Holdings – the percentage of a portfolio’s total net assets or equity holdings in its ten largest securities positions. As this percentage rises, a portfolio’s returns are likely to be more volatile because they are more dependent on the fortunes of a few companies.
Venture Capital – venture capital investments are investments made in young companies that are not yet established in terms of generating profits or cash flows. Venture capital is an important source of financing for start-up companies and others embarking on new ventures that entail a higher than normal level of investment risk and offer the potential for above average returns.