R, S, T, U, V

Question 1

Rate-anticipation swap

Answer 1

A portfolio management technique where 
the bond portfolio manager decides to 
position the portfolio with a longer or 
shorter duration, based on market 
information.

Question 2

Real estate

Answer 2

An alternative investment that tends to take
two forms: private and public. With the
private form, investments are made in real,
tangible assets that usually generate steady
cash flow from rental income; real estate
takes public form when it is securitized
(that is, when a pool of real estate assets is
resold to investors as shares).

Question 3

Real-return bonds

Answer 3

See Index-linked bonds.

Question 4

Relative-value strategy

Answer 4

A hedge fund strategy that attempts to
profit by exploiting inefficiencies or
arbitrage opportunities in the pricing of
related stocks, bonds or derivatives.

Question 5

Replicating an index

Answer 5

A passive investment strategy where the 
manager selects an appropriate index to 
replicate in a fund, holding each stock 
within the fund portfolio in exact 
proportion to its weighting within the 
index.

Question 6

Repo transaction

Answer 6

Essentially a sale and repurchase agreement
where a broker/dealer sells a fixed-income
security to a third party at an agreed upon
price today and simultaneously agrees to
buy back the same security from the third
party at a set price on a future date.

Question 7

Returns-based style analysis

Answer 7

An analysis of a manager’s style developed
by William Sharpe in 1988; performed by
comparing the fund’s returns (usually 36 to
60 months of data) to the returns of a
number of selected passive style indexes

Question 8

Risk budgeting

Answer 8

A process that limits the deviations of a
portfolio’s return from a benchmark. It is
the most common technique used to create
an enhanced index portfolio

Question 9

Road shows

Answer 9

Meetings in which a fund manager’s senior
and regional sales and marketing staff and a
new fund’s investment manager make
presentations to the distributors’ sales staff.

Question 10

Sale of options

Answer 10

Selling options to take advantage of current
or desired portfolio holdings and to earn
additional income.

Question 11

Sector rotation

Answer 11

The attempt by an active portfolio manager

to pick the best sectors.

Question 12

Securitization

Answer 12

The process of turning relatively illiquid

assets into tradable securities.

Question 13

Seed capital

Answer 13

The capital invested in a new mutual fund

at the point in time when it is created.

Question 14

Segregated account

Answer 14

An investment account that is owned by an
institutional investor and managed by a
third-party portfolio manager.

Question 15

Self-regulatory organizations

SROs

Answer 15

Organizations that have been given 
regulatory supervision by the various 
provincial and territorial securities 
commissions by way of monitoring the 
activities of their member firms.

Question 16

Separation of duties principle

Answer 16

A principle that is incorporated into a firm’s
organizational structure to minimize the
potential for employee self-dealing via
collusion with another individual in the
firm.

Question 17

Settlement (of trades)

Answer 17

The moment of irrevocable exchange of

cash and securities.

Question 18

Soft-dollar arrangement

Answer 18

An arrangement where an investment fi rm
purchases services via commission dollars
rather than via an invoice for the goods or
services

Question 19

Special purpose vehicle (SPV)

Answer 19

A legal entity that is set up by the originator
of a loan, typically as a trust. It is the legal
owner of the loans and is separate from the
originator

Question 20

Standards of conduct

Answer 20

Standards to which fiduciaries are held

accountable.

Question 21

Straight-through processing

Answer 21

A type of security trade processing and
portfolio management software that
provides one continuous real-time
investment management database that links
the front, middle and back offi ces of the
fi rm

Question 22

Stratifi ed sampling

Answer 22

See Cellular sampling.

Question 23

Structured products

Answer 23

Financial products that employ financial
engineering in their design and
management.

Question 24

Style analysis

Answer 24

The study of style drift in a fund’s holdings

or returns over time.

Question 25

Style drift

Answer 25

Occurs when a manager’s portfolio strays
from a specific style of investment
management.

Question 26

Sub-advisor

Answer 26

A person or entity that the firm managing
an investment fund will hire because the
sub-advisor has expertise that is deemed
appropriate and beneficial to the fund.

Question 27

Synthetic collateralized debt

obligation

Answer 27

The credit derivative variant of the cash
CDO, where the originator (the bank)
retains ownership of the underlying assets and buys protection from the SPV using a
credit default swap, thus swapping the
credit risk over to the SPV.

Question 28

Target asset mix

Answer 28

The desired market value weighting for the
major asset classes that are included in the
management of the firm’s various balanced
fund portfolios.

Question 29

Target date immunization

Answer 29

In the pension industry, a means of 
protecting a bond portfolio from 
interest-rate risk, where there is an 
obligation to make a future payout on a 
target date.

Question 30

Top-down approach

Answer 30

An approach to investing that begins with a
macro- and microeconomic analysis of
trends and market forecasts in the global,
North American and Canadian economies.
The manager then selects the sectors that he
or she expects will outperform other sectors,
within the expected economic outlook.

Question 31

Tracking error

Answer 31

When a manager is practicing index
trading, the standard deviation of the return
difference between the portfolio and the
index

Question 32

Tracking error minimization

Answer 32

An approach that uses historical data to
model the tracking error variance for each
bond in the index, then minimizes the total
tracking error in that model

Question 33

Trade-matching elements

Answer 33

The details that an institutional investor
must provide to a dealer or custodian in
order to facilitate the settlement of a trade;
there are 26 different elements that must be
confirmed for an institutional equity trade
to clear.

Question 34

Traders

Answer 34

Those employees who actually execute
trades within an investment management
fi rm.

Question 35

Trading philosophy

Answer 35

The role that active security trading plays in
executing the investment management
strategy for a particular fund

Question 36

Tranches

Answer 36

Layers of ownership within an ABS. Each
layer has a different level of credit risk and
hence a different level of return.

Question 37

Transparency risk

Answer 37

The risk incurred by investors’ limited
access to information about their alternative
investments, including the operation of the
fund, its holdings and its performance.

Question 38

Trust

Answer 38

Is a belief that those people on whom we
depend, whether by choice or circumstance,
will meet the expectations we have placed
on them

Question 39

Trustee

Answer 39

A person or entity that holds title to the
property (the cash and securities) of a
mutual fund on behalf of the mutual fund’s
unitholders.

Question 40

Ultimately responsible person

URP

Answer 40

The person within an investment
management firm that is responsible to the
self-regulatory organizations for the
conduct of the firm and the supervision of
its employees.

Question 41

Value-oriented approach

Answer 41

A bottom-up approach to investing that
looks for undervalued securities, with little
focus on overall economic and market
conditions.

Question 42

Values

Answer 42

Beliefs that are long lasting and guide
individual and corporate behaviour and
goals

Question 43

Value system

Answer 43

Is one in which the end and means values

mutually reinforce and support each other.