I, J, K, L Flashcards
Incentive fee
A fee paid to the manager of a fund based
on the fund’s performance. Most hedge
funds and a small number of mutual funds
have incentive fees.
Indenture
A formal document that outlines the
features of a debt security, the obligations of
the issuer, and the rights of the investor
under the contract
Independent variable
A variable assumed to influence another
variable
Index ratio
For Government of Canada real-return
bonds, the ratio of the current consumer
price index (CPI) to the base CPI. The
index ratio is used to calculate the inflation
compensation. See also Consumer price
index, Inflation compensation, and
Real-return bond.
Indexing
A passive investment strategy, supported by
the efficient market hypothesis, designed to
track the performance of a specific market
index. See also Efficient market
hypothesis and Passive investment
strategy.
Industrial capacity utilization rate
A measure (calculated independently in
both Canada and the U.S.) of the intensity
with which industries use their production
capacity, expressed as the percentage of
actual to potential output.
Industrial Product Price Index
IPPI
An indicator of the rate of change for goods
and services sold by Canadian producers.
Industry momentum
The tendency of an industry or sector to
continue to outperform other industries or
sectors. See also Momentum ranking.
Industry momentum ranking
A ranking of industry performance over the
past several periods. The ranking indicates
the consistency of an industry’s
performance relative to others and the
broad market. See also Industry momentum
Inflation compensation
An adjustment to a real-return bond’s
principal representing the cumulative level
of inflation from the bond’s issue date. For
Government of Canada real-return bonds,
the inflation compensation equals the
bond’s principal multiplied by the index
ratio, minus the bond’s principal. See also
Index ratio and Real-return bond.
Infrastructure
Refers to such projects as roads, ports,
airports and water works.
Institute of Supply Management
(ISM) Manufacturing Index
A monthly national survey of American
purchasing and supply executives from over
400 industrial companies.
Interest
Money charged by a lender to a borrower
for the use of his or her money.
Interest rate risk
The portion of a debt security’s total risk
that is related to fluctuations in the general
level of interest rates, as represented by the
yields on federal government bonds. See
also Systematic risk.
Interest rate volatility theory
A theory used to explain the behaviour of
spreads on bonds with embedded options.
According to the theory, yield spreads on
callable bonds widen during times of
greater interest rate volatility, and narrow
during times of lower volatility. Yield
spreads on putable bonds react in the
opposite manner. See also Yield spread.
Interlist
The act of listing securities on more than
one exchange. Many Canadian companies
interlist their common shares on both the
Toronto and New York Stock Exchanges.
Inter-market spread strategy
A debt securities strategy that attempts to
capitalize on the difference in yield spreads
and expected changes in yield spreads
between different sectors of the bond
market. See also Intra-market spread
strategy.
Internal rate of return
An interest rate that equates the price or
value of a security or portfolio of securities
to the present value of the security or
portfolio’s future cash flows.
Interviewing
The process of gathering information about
a client’s investment objectives, personal
circumstances, and “frame of reference.”
This is accomplished by guiding the
discussion or probing
Intra-market spread strategy
A debt securities strategy that involves
swapping bonds that are largely similar. The
investor may have identified mispriced
securities, or may see relative value
differences between two bonds from two
different issuers in the same business sector.
Also known as a substitution swap. See also
Inter-market spread strategy
Inverted yield curve
A downward or negatively-sloped yield
curve characterized by short-term interest
rates that are greater than longer-term rates.
See also Flat yield curve, Normal yield
curve, and Yield curve.
Investment constraints
Factors that limit in some way the securities
that may be included in a client’s portfolio,
expressed as the client’s time horizon,
liquidity requirements, tax situation, legal
and regulatory requirements, and any other
unique circumstances.
Investment grade bond
A debt security with a credit rating of BBB
(low) (or equivalent) and higher. See also
Credit rating and High-yield bond.
Investment management process
An integrated and continual process
designed to meet specific goals and
objectives within a set of constraints.
Investment objectives
Statements that describe what a client is
trying to achieve from the portfolio,
expressed in terms of a return and risk
objective.
Investment policy
An investing plan that supports and
reinforces the investment management
process for a particular client.
Investment policy statement
A document that lays out, in a formalized
manner, a client’s investment policy
Investment strategist
An analyst who analyzes and comments on
a wide variety of investment themes,
including asset allocation, market valuation
and forecasts, sector/industry analysis, and
individual stock selection. Also known as a
market strategist, portfolio strategists, or
just strategist.
Investment strategy
A description of the process used to select
individual securities or managed products
to meet a client’s strategic and tactical asset
allocation strategy. See also Active
investment strategy and Passive
investment strategy.
Issuer extendible note
A debt security for which the issuer has the
right at certain points (normally the
anniversary date of issue) either to allow the
bond to mature, or to extend the maturity.
January effect
The effect where stocks in general, and
small stocks in particular, move abnormally
higher during the month of January.
Junior issuer
The term given to a company whose
securities are listed on the TSX Venture
Exchange. See also Senior issuers.
Junk bond
See High-yield bond.
Key drivers
Financial statement items that significantly
influence the values of other financial
statement items.
Key reversal
A reversal formation that marks the end of
a trend. At the start of a key reversal, prices
continue to move strongly in the direction
of the trend, reaching a new high (in the
case of an up trend), or a new low (in the
case of a downtrend). By the end of the day,
however, the price has closed lower (in the
case of an uptrend) or higher (in the case of
a downtrend) than the previous day’s close.
See also Reversal formation.
Know-your-client (KYC) rule
Requires IAs to be familiar with all relevant
aspects of a client’s financial and, where
appropriate, personal circumstances to
ensure that investments recommended are
appropriate for the client.
Labour Force Survey (LFS)
A monthly household survey conducted by
Statistics Canada. It includes the calculation
of Canada’s unemployment rate.
Labour-Sponsored Venture Capital
Corporation (LSVCC)
An investment fund (sponsored by a labour
organization) that has a specific mandate to
invest in small to medium-sized businesses.
To encourage investment in this type of
fund, the federal and provincial
governments offer generous tax credits to
investors in LSVCCs.
Land banking
The purchase of a tract of raw land outside
an urban area with the expectation that the
urban area will expand because of economic
growth in the region.
Large-cap stock
A stock with a large market capitalization.
See also Small-cap stock.
Legal requirements
Any legal issues that limit or restrict the
way a portfolio is managed. See also
Regulatory requirements.
Leveraged buyout
The majority buyer of a company’s shares
finances this purchase through debt, often
with the assets of the acquired company
used as collateral for the loan.
Line chart
A type of chart that plots a single value only.
See also Bar chart and Candlestick chart.
Liquidity date
A pre-specified time of the year when
investors are allowed to redeem their units
in a hedge fund. See also Hedge fund.
Liquidity ratio
A ratio that measures a company’s ability to
generate cash from its assets and indicate its
ability to meet its short-term obligations.
Liquidity requirements
The actual and potential cash needs of
a client.
Long/short equity hedge fund
A hedge fund that takes long positions in
stocks expected to rise more in a bull
market than the overall market, and that
take short positions in stocks that will rise
less. See also Hedge fund.
