## Glossary

It is not possible to invest directly in an index.

**Alpha** – the excess returns of a fund relative to the return of a benchmark index.

**Basis point** – a basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instruments. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.

**Beta **– A beta coefficient is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market. In statistical terms, beta represents the slope of the line through a regression of data points from an individual stock’s returns against those of the market.

**Cash flow** – the cash generated by a business from operations that is left over after spending on maintenance capital expenditures and acquisitions that are required to protect the business. In other words, it’s the cash flow from operations that is free and clear to be distributed to shareholders in the form of dividends and share repurchases, and/or to be allocated towards ways to grow the existing business through means such as “growth” acquisitions or new capital expenditures, and/or simply to pay down debt. Typically, we calculate this by looking at a normalized view of net income plus depreciation and amortization minus the maintenance capital expenditures and acquisitions that are required to protect the business, adjusted for often overlooked items such as pensions, stock option expenses, and leases.

**Correlation** – is a statistic that measures the degree to which two securities move in relation to each other. A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves, either up or down, the other security moves in lockstep, in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no relationship at all.

**Coupon** – A coupon is the annual interest rate paid on a bond, expressed as a percentage of the face value.

**Dividend Yield** – is the ratio of a company’s annual dividend compared to its share price.

**Dow Jones Industrial Average (DJIA)** – is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq. The DJIA was invented by Charles Dow in 1896.

**Downside and upside capture** – An upside capture ratio over 100 indicates a fund has generally outperformed the benchmark during periods of positive returns for the benchmark. Meanwhile, a downside capture ratio of less than 100 indicates that a fund has lost less than its benchmark in periods when the benchmark has been in the red.

**Duration** – Duration is a measure of the sensitivity of the price – the value of principal – of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Bond prices are said to have an inverse relationship with interest rates. Therefore, rising interest rates indicate bond prices are likely to fall, while declining interest rates indicate bond prices are likely to rise.

**Free Cash Flow** – Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the non-cash expenses of the income statement and includes spending on equipment and assets as well as changes in working capital from the balance sheet.

**GDP** – abbreviation for gross domestic product and measures the total value of goods produced and services provided in a country during one year.

**Leverage Ratio** – is calculated by taking the net debt of a company and dividing it by earnings before interest, taxes, amortization, and leases to determine the financial leverage of a company. Formula: (debt + capitalized leases – cash) or net debt / earnings before interest, taxes, amortization, and leases.

**Market Cap** – the aggregate valuation of a company based on its current share price and the total number of shares outstanding.

**Martin Ratio – **is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It is designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period.

Other volatility measures like standard deviation treat up and down movement equally, but most market traders are long and so welcome upward movement in prices, it is the downside that causes stress and stomach ulcers that the index’s name suggests.

**Morningstar Large Cap Blend Category** – Large-blend portfolios are fairly representative of the overall US stock market in size, growth rates and price. Stocks in the top 70% of the capitalization of the US equity market are defined as large cap. The blend style is assigned to portfolios where neither growth nor value characteristics predominate. These portfolios tend to invest across the spectrum of US industries, and owing to their broad exposure, the portfolios’ returns are often similar to those of the S&P 500 Index.

**MSCI ACWI** – is the MSCI All Country World Index which is a market capitalization weighted index designed to provide a broad measure of equity-market performance throughout the world.

**Nasdaq Composite (^IXIC)** – is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange, including various types of securities such as American Deposit Receipts (ADRs), Real Estate Investment Trusts (REITs) as well as limited partnership interests.

**P/E (Price-to-Earnings)** – The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts to determine the relative value of a company’s shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time.

**PMI** – Purchasing Managers’ Index is an index of the prevailing direction of economic trends in the manufacturing and service sectors. The purpose of the PMI is to provide information about current and future business conditions to company decision makers, analysts, and investors.

**Price to Sales** – is calculated by taking a company’s market capitalization (the number of shares outstanding multiplied by the share price) and divide it by the company’s total sales or revenue usually over the past 12 months. This is typically used as a valuation ratio where the stock price is compared to its revenues.

**Put and Call Definition** – If a call is the right to buy, then perhaps unsurprisingly, a put is the option to sell the underlying stock at a predetermined strike price until a fixed expiry date. The put buyer has the right to sell shares at the strike price, and if he/she decides to sell, the put writer is obliged to buy at that price.

**R&D** – research and development. Refers to the activities companies undertake to innovate and introduce new products and services.

**Return on Capital** – is a profitability ratio. It measures the return that an investment generates for capital contributors i.e. stockholders. It indicates how effective a company is at turning capital into profits.

**ROE (Return on Equity)** – is a measure of financial performance calculated by dividing net income by shareholders’ equity. Because shareholders’ equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets. ROE is considered a measure of how effectively management is using a company’s assets to create profits.

**Russell 1000 Index** – is an index measuring the performance of approximately 1,000 of the largest companies in the U.S. equity market. It represents the top companies by market capitalization.

**Russell 2000 Index** – is an index measuring the performance of approximately 2,000 smallest-cap American companies.

**S&P Global BMI **– The Standard and Poors Global Broad Market Index (BMI) is a comprehensive, rules-based index designed to measure global stock market performance. The index covers all publicly listed equities with float adjusted market values of US$ 100 million or more and annual dollar value traded of at least US$ 50 million in all included developed and emerging market countries.

**S&P 500 Index (SPX)** – a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. It is not possible to invest in an index.

**S&P 500 Retailing Index (SP500-2550)** – is an unmanaged index of 500 U.S. domestic stocks within the sub-category of the consumer retailing industry as classified by Standard and Poor’s.

**SaaS** – Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is sometimes referred to as “on-demand software”.

**Sharpe Ratio – **The Sharpe ratio was developed to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

**Shiller CAPE ratio** – The cyclically adjusted price-to-earnings ratio, commonly known as CAPE, Shiller P/E, or P/E 10 ratio, is a valuation measure usually applied to the US S&P 500 equity market. It is defined as price divided by the average of ten years of earnings, adjusted for inflation.

**Spread** – the difference between two numerical or qualitative factors.

**Stoxx Europe 600 Index (SXXP)** – a broad based inmanaged index of 600 stocks within the European region, which is widely recognized as representative of the European equity market in general. It is not possible to invest in an index.

**Standard deviation **– is a statistical measurement in finance that, when applied to the annual rate of return of an investment, sheds light on the historical volatility of that investment. The greater the standard deviation of securities, the greater the variance between each price and the mean, which shows a larger price range. For example, a volatile stock has a high standard deviation, while the deviation of a stable blue-chip stock is usually rather low.

**Ulcer Index **– shares the same definition as Martin Ratio. It is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It is designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but most market traders are long and so welcome upward movement in prices, it is the downside that causes stress and stomach ulcers that the index’s name suggests.

**Yield** – on a security is the amount of cash (in percentage terms) that returns to the owners of the security, in the form of interest or dividends received from it. Normally, it does not include the price variations, distinguishing it from the total return.

**Yield curve** – is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the yield curve gives an idea of future interest rate changes and economic activity.