K, L, M, N, O, P Flashcards
“Know Your Client” (KYC) rule
An industry best practice that stipulates an
investment professional should give
appropriate cautionary advice to and
perform appropriate action for a client
based on the client’s investment objectives
and needs.
Laddered portfolio
In a laddered portfolio, bonds are initially
purchased with each maturity up to 30
years in equal proportions
Late trading
An illegal activity where a mutual fund
company allows a trader to enter an order,
either to purchase or sell, after the
established cut-off time.
Leverage
The use of borrowed money to extend the
buying power of a fund.
Limited partnership (LP)
A common form of business organization
with one or more general partners who
manage the business and assume legal debts
and obligations, and one or more limited
partners who are liable only to the extent of
their investment.
Liquidity date
Pre-specified times of the year when
investors may be allowed to redeem units in
an alternative investment fund.
Lockup
The time period that initial investments
cannot be redeemed from an alternative
investment fund or product.
Long–short investing
A portfolio construction technique designed to take greater advantage of information within the equity market. Purchases of stocks are offset dollar for dollar with short sales of other stocks
Macaulay duration
The weighted average maturity of a bond
where the weights are the relative
discounted cash flows in each period.
Macaulay duration formula
A formula devised by Frederick Macaulay
in 1938 to deal with the valuation and time
pattern of duration on bond:
Managed futures fund
A fund that invests in listed fi nancial and
commodity futures markets and currency
markets around the world
Management expense ratio (MER)
The amount charged to a fund by the fund
manager before any returns are paid out to
investors. The MER includes the fund
manager’s compensation and other expenses
associated with operating the fund.
Management styles
The term used to describe an equity
portfolio manager’s investment strategy;
generally falls into two categories: active or
passive.
Manufacturer (of a PPN)
An entity that helps the issuer of a PPN
design the notes and market them to
investors and distributors.
Market depth
The number of shares available at the bid
price and offer price.
Market price
The price that a security will fetch on open
bidding in the market. Depending on the
type of security, market prices can be
interpreted in different ways.
Market timing
Buying or selling global securities after
global markets have closed (but still remain
open in North America because of time
zone differences) to take advantage of
information that will affect the securities
when the markets reopen the next day.
Market–neutral investing
See Long–short investing
Means values
The actions taken in the present to achieve
a future goal.
Micro-cap stocks
Companies that tend to have a market
capitalization between $50 million and
$300 million.
Minimum investment exemption
Allows the sale of securities without a prospectus to investors who make a prescribed minimum investment; NI 45-106 sets this minimum at $150,000 across all jurisdictions in Canada.
Modern portfolio theory (MPT)
A theory developed by Harry Markowitz
that contends that diversification of a
portfolio across different asset classes with
low or negative correlation characteristics
will minimize risk.
Mortgage-backed securities
MBSs
Portfolios of mortgages assembled and sold
in tranches to increase mortgage capital for
lenders and offer secure higher-yielding
medium-term investments, comparable to
government bonds
National instruments
A series of regulations developed by the
CSA that are applicable across the country
and serve to harmonize rules and
regulations in each jurisdiction
Net asset value (NAV)
The market value of the fund’s units or
shares on a particular date.
New product development
committee
A committee put together to vet and assess
new investment fund or product
opportunities for the investment
management firm.
NI 81-102
The National Instrument that applies to
mutual funds in Canada and outlines the
permitted derivative activities that these
funds can undertake.
NI 81-104
The National Instrument introduced in
2002 that permits a broader use of
derivatives by funds that fall into the
definition of commodity pools.
Non-exempt investors
Non-exempt investors
Offering memorandum exemption
An exemption that waives the requirement
for the security or fund to be distributed
with a prospectus.
Offi ce of the Superintendent of Financial Institutions (OSFI)
An independent agency of the Government
of Canada that supervises, monitors and
regulates the investment industry.
Ontario Securities Commission
OSC
An example of a Canadian securities
regulator. The OSC’s mandate, as set by the
Government of Ontario, is “to provide
protection to investors from unfair,
improper or fraudulent practices and to
foster fair and efficient capital markets and
confidence in capital markets.”
Passive bond management
A bond management style where no
attempt is made to predict the direction or
magnitude of interest rates, thereby
minimizing the effects of interest-rate risk
on a bond portfolio.
Passive portfolio management
A portfolio management style that is
consistent with the view that securities
markets are efficient, that is, that securities
prices at all times reflect all relevant
information concerning expected return
and risk.
Peer investment manager
performance surveys
Surveys that are produced by a number of
the larger pension consulting firms and
contain sufficient information to evaluate
the effectiveness and competitiveness of an
individual firm’s investment process.
Pension consultants
Pension consultants
Performance attribution
Evaluating an investment manager’s
performance by attributing the success or
failure of the portfolio to specific decisions
the manager made.
Performance benchmark
A benchmark against which a new
investment product will be measured to
explain the fund’s performance.
Personal Information Protection
and Electronic Documents Act
(PIPEDA)
A federal law that regulates how businesses,
including investment management fi rms,
handle and secure personal and private
data
Plan sponsor
In the case of a private pension plan, the
employer offering the pension plan to its
employees.
Pooled fund
An open-ended trust in which investors
contribute funds that are then invested, or
managed, by the institutional investment
manager
Pooled investment vehicles
Portfolios where investors place their money
to achieve diversification at lower costs;
some examples are mutual funds, hedge
funds and private investment partnerships.
Portable alpha
The process of using derivatives or short
selling to separate the alpha and beta return
decisions and to apply the alpha to
portfolios of other asset classes.
Portfolio accounting information
Information provided to an institutional investor in the portfolio management report that includes detailed portfolio holdings, a report on all security transactions and an income report
Portfolio management information
Information provided to an institutional investor in an investment management fi rm’s quarterly report to clients that includes return data, holdings data, attribution analysis and market commentary
Portfolio management report
The document of record that an
institutional client refers to for information
on a firm’s holdings and performance.
Portfolio manager
An individual, or a team of individuals,
who advises clients on investments
appropriate to the clients’ individual
circumstances and investment objectives;
the portfolio manager is also responsible for
making the day-to-day investment
management decisions affecting the
portfolios for which he or she is responsible
Portfolio turnover
A way to measure the degree or amount of
active management, specifically trading
activity; calculated by dividing the annual
market value of securities trades by the
market value of the portfolio.
Pre-operational audit
An audit of all systems and processes before
the launch of a new investment fund, to
ensure that all operational aspects associated
with the sale and management of the new
fund are functioning properly at industry
standards.
Pre-trade compliance testing
A process to ensure that all security trades
are compliant with all security regulations
pertaining to both capital market conduct
and the particular fund, as well as all of the
investment guidelines and restrictions that
are agreed upon with the investors prior to
the execution of the trade
Prime brokerage structures
Structures that allow managers to establish
a stock loan account with a broker.
Principal-protected notes (PPNs)
A debt instrument where the principal is
protected by a guarantee from the issuer of
the note.
Private equity
Equity investments not actively traded on
public markets; classified as alternative
investments.
Pro-forma fi nancial projection
Financial projections prepared for a new fund that include three key inputs or assumptions: assets under management (revenue); fees charged to investors (revenue); all fees and expenses to be charged to the fund.
Project management committee
A committee that is responsible for all of
the steps and activities required to bring a
new product to market after it has been
approved by the new product development
committee.
Provincial and territorial securities
commissions
The governing securities regulators in
Canada; they are charged with enforcing
and helping to frame the various securities
acts of the provinces
Prudent man rule
Mandates acting as a thoughtful and careful
person would, given a particular set of
circumstances.
