A quantitative measurement of relationship between the returns of a portfolio and an underlying market index.
Conditional VaR (Expected shortfall)
Measures the average expected loss to the Fund should VaR95 be exceeded. It is the average expected value of all the data points outside the 95th percentile of returns. (see VaR)
The risk of financial loss as a result of the inability or unwillingness of an entity to make payments as they become due.
A financial contract that derives its value from the performance of underlying assets.
The company’s dividend expressed as a % of the share price.
A risk management strategy used to limit or offset potential losses/gains that may be incurred from a related risk.
Historical VaR is calculated from the confidence level of the historical daily return changes
Liability Driven Investments (LDI)
Portfolio of gilts, cash and/or derivatives whose main purpose is to closely match changes in value of part (or all) of a pension plan’s liabilities.
Risk attached to an increase in the life expectancy of scheme members and consequently result in pensions being paid for longer than expected.
The difference between the VaR of the portfolio without the asset in question and the entire portfolio
The grouping of a number of cash flows from securities by maturity ranges. A maturity bucket may be, for example, 3 months – 1 year.
Monte Carlo Simulation
An analytical technique used for estimating the probability distribution of possible outcomes. Through calculating a large number of trial simulations, a solution can be inferred from the collective results of the trial runs. Monte Carlo simulation can be used to calculate VaR. (see VaR)
The process of attributing certain portions of total performance to various sources such as property, credit, hedge funds, etc.
A valuation measure using the ratio of a company’s share price to its book value.
A valuation measure using the ratio of a company’s share price to its earnings.
Relative Value DGF
A multi-asset strategy with long/short positions across asset classes which incorporates a large breadth of instrument usage, including derivatives. These funds, like the broader DGF stable, tend to target equity-like returns (most commonly cash + 4-5%) with a volatility much lower than that of equities.
The process of attributing certain portions of total risk to various sources such as inflation risk, credit risk, equity risk, etc.
An investment approach wherein the underlying assets - equities, bonds and commodities - are weighted not by capital invested/market exposure but by risk contributed to the overall portfolio. The purpose is to, through continuous rebalancing and leverage to target a desired return/risk balance, ensure that risk exposure is evenly spread across the different risk factors.
A term used to describe the fact that the yield curve typically has a slope to it and, as time passes, a 10-year security will become a 9-year maturity, then an 8-year maturity, and so on with different yields. Thus the passage of time alone will produce returns – roll down returns.
Contractual-type asset (such as bonds) with a relatively short time horizon to maturity, usually a year or less.
The excess returns a quantitative manager can generate over smart beta benchmarks.
Wide term that applies to alternative index construction (includes styles such as value, size and momentum), designed to outperform traditional benchmarks.
A tool used to assess a portfolio’s exposure to large – but plausible – shocks.
A quantitative measurement of relationship between the returns of a portfolio and an underlying style index.
A swap contract is an agreement between two parties to “swap” one set of pre-defined future payments for a different pre-defined set, over an agreed period. The most frequently used example for pension schemes is interest rate swaps where floating payments are exchanged for a final fixed payment.
The rate of the fixed portion of a swap as determined by its particular market,usually referring to an interest rate swap.
The difference between the swap rate and the gilt yield of corresponding maturity.
The excess returns a fundamental manager can generate over smart alpha.
An investment style that seeks stocks that the market may have undervalued.
A measure of variability that is used as a common metric for risk. It represents the value of a one standard deviation change in the value of an asset’s or portfolio’s return. Under certain assumptions, we are able to use this measure to calculate the probability of a given change in the value of the asset or portfolio.
Annual return in percent you can expect from a credit asset if you hold it until your investment is paid back. The yield allows for an easy comparison of the return that can be expected from different credit assets.
A graphical representation of the relationship between the maturity and yield of a set of financial instruments.
Zero coupon swap
An agreement between two parties in which all payments of the swap are based on an agreed notional amount. The floating rate payer may make floating-rate payments based on a benchmark. The fixed-rate payer accrues interest at a fixed rate for the life of the swap but does not make payments. At the maturity of the swap, the fixed-rate payer pays all of compounded interest in one large payment.