Topic 2 Flashcards
Absolute Return Products
Assets that make returns. Different from Relative Returns in that it isn’t benchmarked against others
Active Management
The use of human capital to manage a portfolio
Active Risk
The risk taken on in order to outperform a benchmark
Diversifier
Something to hedge against the current makeup of a portfolio, performance is not correlated with the rest of the portfolio
Incomplete Markets
Where the number of Arrow-Debreu securities is less than the number of states in nature. Total supply is insufficient to meet the needs of consumers.
Institutional Factors
Economic factors, labor markets, social factors, political factors
Lumpy Asset
An asset that can not be acquired in small bits
Pure Arbitrage
Buying & selling the same security on different exchanges to take advantage of price differences
Relative Return
Difference between an asset’s return and its benchmark
Return Enhancer
Asset added to the portfolio that is expected to have a higher than average return.
40 Act Fund
Pooled investment vehicle (mutual funds)
Adverse Selection
Buyers and sellers don’t have the same information.
Closed-End Mutual Fund
Mutual fund that only has a limited number of shares
Open-End Mutal Fund
Can have unlimited shares
Depository Trust Company
Clearinghouse that processes and settles trades and does record-keeping of securities balances
Dividend Irrelevance Theory
Dividends don’t affect the company stock price (some critics say dividends add value to a stock price)
Feeder Fund
One of several sub-funds that pools investments into a master fund which then pays out earnings back to the feeders.
Fourth Markets
Referring to when securities trade OTC (over-the-counter)
General Collateral Stocks
Securities that generate lending income. Lending these highly liquid securities (S&P 500 stocks) yield low returns and are done at high volumes.
Limited Partners Advisory Committee
A committee of LPs that has voting rights and advises the GPs (general partners)
Plan Sponsor
A party that sets up 401ks or healthcare insurance for a company’s employees
Prime Brokerage
Investment services offered to funds by IBs or individuals by wealth managers.
Probity
Adherence to ideas
Primary Market
Where securities are created (directly from the source)
Secondary Market
Where securities are traded (stock market)
Section 1256 Contract
Investments made in derivatives where if not sold by the end of the year it is treated as sold at fair market value.
Qualified Majority
Number of votes required for a decision to be made
Short Squeeze
When many investors short a stock, but the price keeps going up.
SPV & SPE (special purpose vehicle/entity)
A subsidiary created by a financial company to isolate financial risk
