Back-end load is a redemption charge an investor pays when withdrawing money from an investment. Most common in mutual funds and annuities, the back-end load is designed to discourage withdrawals. Back-end loads typically decline for each year that a shareholder remains in a fund. Typically back-end load charges start at around 5% to 7% in the first year, and will decline towards 0% over the next 5 to 7 years. Also known as deferred funds, back-end funds, or rear load funds.
A financial statement showing a company’s assets, liabilities and shareholders’ equity on a given date. It shows what the company owns and what debts it owes.
A mutual fund that has an investment mandate of “balancing” its portfolio holdings. The fund generally includes a mix of stocks and bonds in varying proportions according to the fund’s investment outlook.
An investment portfolio that holds an appropriate mix of different types of investments, such as bonds and shares.
In some serial bond issues a balloon is an extra-large amount that may mature in the final year of the series.
The central bank of Canada, founded in the 1930s to facilitate the functioning of the financial system. The Bank of Canada issues and removes bank notes, acts as the federal government’s financial advisor on debt management and foreign exchange, and conducts monetary policy to regulate the growth of the country’s money supply and influence interest rates.
A secured loan by the Bank of Canada to a bank or other member of the Canadian Payments Association.
The minimum rate at which the Bank of Canada will make short-term advances to the chartered banks and money market dealers. Since 1980 the bank rate has been set at 1/4 of 1% (25 basis points) above the weekly average tender rate of 91-day Government of Canada treasury bills. The upward and downward trend of the bank rate affects the prime lending rates that chartered banks give to their most creditworthy borrowers, as well as rates on all types of bank deposits, short-term paper, bonds and mortgages.
A type of short-term negotiable debt instrument issued by a non-financial corporation, such as Ford or General Motors, but guaranteed as to principal and interest by its bank. The guarantee reduces risk and therefore results in a higher issue price and consequent lower yield.
A group of investment dealers, each of which individually assumes financial responsibility for part of an underwriting of a new issue of securities for a corporation.
The legal status of an individual or company which is unable to pay its creditors and whose assets are therefore administered for its creditors by a trustee in bankruptcy.
A fixed-income strategy in which the maturities and/or durations of included securities are concentrated at two extremes. For example, a portfolio may be designed to allocate 50% of its fixed-income securities to maturities of less than three years, while the remaining 50% is held in fixed-income securities with maturities of more than 15 years.
A phrase used to describe differences in bond yields, with one basis point representing one-hundredth of a percentage point. Thus, if bond X yields 11.50% and bond Y yields 11.75%, the difference is 25 basis points.
The independent provincial government agency that regulates trading in securities (like stocks and bonds) and protects investors in BC.
A market in which prices are declining. A “bear” is a person who expects that the market or the price of a particular security will decline.
A stock or bond which does not have the owner’s name recorded in the books of the issuing company or on the security certificate itself. The holder of the certificate is the owner. Interest, dividends or any profits from sales are payable to the holder.
A market or sector index against which you can measure the performance of an investment (such as a mutual fund). For example, if a fund invests mainly in Canadian stocks, the benchmark might be the S&P/TSX Composite Index, which tracks companies trading on the Toronto Stock Exchange.
The real owner of a security. An investor may have securities registered in the name of a broker, trustee or bank to facilitate transfer or to preserve anonymity, but the investor is the beneficial owner and will receive any dividends, interest or profits from sales.
The benefit restriction age is the maximum age at which one can purchase a segregated fund to ensure 100% death guarantee. Any policy purchased after this age is subject to less than 100% of the value of the policy in the event of death.
The underwriter agrees to use his or her best efforts to sell a new issue of securities, but does not guarantee to the issuing company that any or all of the issue will be sold. The underwriter acts as an agent for the issuer in distributing the issue to his clients.
Beta is one of the five principal risk measures (Beta, Alpha, r-square, Sharpe Ratio and Standard Deviation).
A measure of market price volatility, or systematic risk, for a single investment or a portfolio of investments when compared with the market as a whole.
You can think of beta as the tendency of an investment’s rate of returns to respond to the up and down swings in the market. If an investment is said to have a beta equal to 1 then the investment’s price is expected to move exactly as the market moves. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market. For example, if a stock’s beta is 1.2, in theory its market price will be 20% more volatile than the market itself.
For example, many utilities stocks are said to have a beta of less than 1. Conversely, most high-tech stocks have a beta of greater than 1, offering the possibility of a higher rate of return, but also posing more risk.
An organization dedicated to fostering fair and honest relationships between businesses and consumers, instilling consumer confidence and contributing to an ethical business environment.
The highest price a person is willing to pay for a security.
A blood relation as defined in the governing RESP legislation, is a person related by blood, marriage, or adoption and refers to grandparents, parents, their children, their grandchildren, or the brothers and sisters of the subscriber to the Plan. Stepchildren, step-grandchildren, stepparents, and step-grandparents are all included.
Nationally-known common stock, usually with a continuous dividend payment record in good times and bad and other strong investment qualities. These stocks are usually high-priced but have a tendency to be low-yielding.
A slang term for laws various Canadian provinces and American states have enacted to protect the public against securities frauds. The term “blue skyed” indicates that a new issue has been cleared by a securities commission and may be sold to the public.
A regular trading unit which has been decided upon by the stock exchanges. For example, one board lot on the Toronto Stock Exchange equals 1000 shares for shares priced under 10 cents each, 500 shares for shares priced between 10 cents and 99 cents, and 100 shares for shares of $1 and over.
Duration is a measure of the length of time it will take the bond’s cash flows to repay the investor the price he or she paid for the bond.
The concept of Bond duration is also central to the measurement of the price sensitivity of a bond to changes in interest rates, In general, the longer the duration of a bond, the higher the volatility or sensitivity of its market price to changes in yield to maturity.
The duration of compounding bonds is always equal to its term to maturity. For a conventional bond, its duration will be less than its term to maturity because the bond pays a portion of its return, through interest payments, prior to its maturity.
The change in the value of a fixed income security that will result from a 1% change in interest rates. Duration is stated in years. For example, a 5-year duration means the bond will decrease in value by 5% if interest rates rise 1% and increase in value by 5% if interest rates fall 1%.
The number of years to the date as of which a bond matures (i.e. the principal is repaid to the bond holder).
A mutual fund whose portfolio consists primarily of bond holdings. Such funds may specialize in a particular type of bond such as government, corporate, high-yield, municipal or foreign. Bond funds produce capital gains when interest rates fall and capital losses when interest rates rise.
Rating agencies grade bonds on a letter scale that indicates credit worthiness and risk. In simplest terms, the lower the letter scale, the lower the quality and the higher risk potential:
A certificate which is evidence of a debt on which the issuer promises to pay the holder a specified amount of interest for a specified length of time, and to repay the loan on its maturity. Strictly speaking, assets are pledged as security for the loan, except in the case of government bonds, but the term is often loosely used to describe any debt issue. Bonds are issued by corporations and by federal, provincial and municipal governments. Bond holders are first in line before shareholders to claim any of a company’s assets in the event of liquidation.
See Book Value
Securities that are not represented by a certificate. Purchases are recorded on customers’ accounts but no certificates change hands. This is increasingly popular because it cuts down on paperwork for brokers and investors don’t have to worry about safeguarding certificates.
The cash value of a business which, after all debts are paid, belongs to the owners of a company shareholders liquidated. This is calculated by looking at the balance sheet and subtracting the company’s liabilities and value of preferred shares from its assets, and then dividing what is left by the total number of common shares outstanding.
Bottom-up investors research many companies to find only those that meet their investment criteria. If such stocks can be found, they are purchased. If not, the fund will build cash. To a bottom-up investor cash is not an asset class, but a holding tank waiting for research to uncover investment opportunities. Little or no emphasis is placed on anticipating moves in the economy, the markets or the outlook for the industry.
An entire issue of new stocks or bonds bought from the issuer by an investment dealer, frequently acting alone, for resale to its clients. The dealer risks its own money in a bought deal, and in the event that the price has to be lowered to sell out the issue, the dealer absorbs the loss.
A bridge benefit usually provides income from the date a pension plan member takes early retirement to the date when the member is entitled to receive Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) retirement benefits and/or Old Age Security benefits.
A monetary aggregate that consists of narrow money plus other less-liquid assets (mostly savings-type deposits) that can readily be converted into a means of payment. It measures money held as a store of value and provides leading information about future spending and, thus, about inflation.
A concept whereby the earnings per share of a company are computed to include a pro rata share of the earnings of all unconsolidated subsidiaries and associated companies.
A securities firm or an investment advisor associated with a firm. When acting as a broker for the purchase or sale of listed stock, the investment advisor does not own the securities him or herself, but acts as an agent for the buyer and seller and charges a commission for these services.
An estimate of the income and expenses of a person, a family, or an organization, over a certain period of time.
A market in which prices are rising. A “bull” is a person who expects that the market or the price of a particular security will rise.
A fixed-income strategy in which a portfolio is designed to have securities with maturities and/or durations that are highly concentrated at one point on the yield curve.
Those days when most corporate and government offices are open for business, usually any day except Saturday, Sunday and legal holidays.
If the seller of a security fails to deliver the securities sold to another person within a specified number of days after the settlement date, the buyer may purchase the securities in the open market and charge the seller the cost of such purchases.
Purchasing a security with credit available through a broker, called a “margin account.”