A
Absolute Return
Strategy - The Absolute Return Strategy Pool
is managed with the objective of providing investment
returns higher than the Consumer Price Index (CPI)
plus 6%. The Pool uses external fund managers
who employ various investment strategies.
These strategies are expected to produce positive
absolute returns in excess of the rate of inflation
with low volatility.
Accrued Interest
- Interest income that has been earned but not yet
paid in cash.
Active Strategies
- The strategies have two forms - security selection
or market timing. Security selection is the buying
and selling of securities to ear a return above
a market index such as the TSE 300 Index for Canada
Stocks. Market timing is based on shifting asset
class weights to earn a return above that available
from maintaining the asset class exposure of the
policy asset mix.
Asset Mix -
The percentage of an investment fund's assets allocated
to major asset classes (for example 60% equities,
5% real estate and 35% fixed income).
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B
Bear Market - A
prolonged period of falling prices, usually by 20%
or more, accompanied by widespread pessimism.
Benchmark -
A standard against which others are measured. For
the purposes of the AHSTF Annual Report, benchmarks
are established income indices used to measure the
health of the Fund's investment income.
Bond/Debenture
- A financial instrument where the issuer promises
to pay interest on a periodic basis and repay the
principal at the maturity date.
Book Value -
Also known as Cost Value. The value for which an
asset was acquired.
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C
Capital Gain
- The market value received on sale of an asset
beyond its book value or purchase price. If an asset
is bought for $50 and sold for $75, the realized
capital gain (profit) is $25.
Cost Value -
The value for which an asset was acquired.
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D
Deposits - Liquid,
short-term investments. A cash equivalent.
Derivative Contract
- Financial contracts, the value of which is derived
from the value of underlying assets, indices, interest
rates or currency rates.
Duration (also
called Modified Duration) - Modified duration
is the weighted average term to maturity of the
security's cash flows (i.e., interest and principal)
and is a measure of price volatility; the greater
the modified duration of a bond, the greater its
percentage price volatility.
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E
Emerging Market
- An economy in the early stages of development
whose markets have sufficient size and liquidity
and are receptive to foreign investment. Examples
include Chine, Greece and Brazil.
Equity - Stocks;
the ownership interest in a company.
External Manager
- A third-party firm contracted to provide investment
management services.
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F
Fair Value -
Fair value is the amount of consideration agreed
upon in an arm's length transaction between knowledgeable,
willing parties who are under no compulsion to act.
Fair value is similar to market value.
Fixed Income Securities
- Interest bearing investments such as bonds or
debentures and money market investments such as
treasury bills and discount notes (see "Bond"
and "Money Market Security").
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G
General Revenue
Fund (GRF) - The central operating account for
the Province of Alberta. It is where most of the
revenues received by the Province are deposited
and from where most expenditures are made.
Generally Accepted
Accounting Principles (GAAP) - These are accounting
guidelines, formulated by the CICA's (Canadian Institute
of Chartered Accountants) Accounting Standards Committee,
that govern how businesses report their financial
statements to the public. They are the principles
under which the financial statements of the Heritage
Fund and other provincial funds are prepared. These
principals help ensure fair presentation of the
financial affairs of the Province.
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I
Income - The
return from an investment. Can be derived from interest,
dividends or appreciation in the value of asset
that is realized when the asset is sold.
Internal Rate of
Return - The internal rate of return is the
average rate earned by each and every dollar invested
during the period. This rate is influenced not only
by the movements in financial markets and decisions
made by portfolio managers, but also by the timing
and size of the cash inflows and outflows and the
beginning and ending book or market values. Since
the internal rate of return weights the final overall
return by the size of the investment and the timing
and size of cash flows in each subperiod, the method
produces inappropriate results if the purpose is
to compare the performance of two investment funds.
For that purpose, the investment industry standard
is to use time-weighted rates of return (see "Market
(Value) Rate of Return").
Interest Rate Sensitive
Equity - Equity whose return is expected to
react to changes in interest rates.
Investment Income
- Investment income is income from realized capital
gains, interest, dividends, security lending and
swaps.
Investment Portfolios
- A pool of securities held as an investment. Holdings
of a diverse group of assets by an individual company
or fund.
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L
Large Cap -
Investment in larger capitalized firms. Within Canada,
companies with a market capitalization of greater
than 0.15% of the total Toronto Stock Exchange market
capitalization.
Liquidity -
Describes the ease with which an asset can be turned
into cash and the certainty of the value it will
fetch.
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M
Market Value
- see Fair Value
Market (Value) Rate
of Return - The market value rate of return
measures income (dividends, cash interest and accrued
interest) and capital appreciation (or capital depreciation).
The method used to calculate the return is the time-weighted
method with quarterly valuations. Time-weighted
rates of return are designed to eliminate the effect
that that the size and timing of cash flows has
on the internal rate of return since the
pattern of cash flows vary significantly among fund.
The investment industry uses time-weighted rates
of return when comparing the returns of one fund
to another fund or to an index.
Marketable Security
- An investment for which there is usually a ready
market.
Mid-Term Investment
- A fixed income investment (bonds, debentures,
treasury bills or discount notes) that matures in
one to five years from the date of acquisition.
Modified Duration
- A measure of price volatility of fixed income
securities (i.e., bonds). It is the weighted average
term-to-maturity of the security's cash flows (i.e.,
interest and principal). The greater the duration
of the bond, the greater its percentage price volatility.
Money Market Security
- A fixed income security that matures within one
year from the date of acquisition.
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N
Net Income -
The amount of earnings remaining after deducting
expenses.
Net Investment Income
- On a cost basis, includes realized capital gains,
interest, dividends, security lending income, derivative
income and administrative expenses. On a fair value
basis, include, in addition to the above, current
period changes in unrealized gains and losses.
Nominal Rate of
Return - A measure of return that does not exclude
or net out the effect of inflation (see Real Rate
of Return).
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P
Par Value -
A value set as the face amount of a security, typically
expressed as multiples of $100 or $1,000. Bondholders
receive par value for their bonds on maturity.
Passive Strategies
- These strategies involve investing to replicate
the performance of a given market index such as
the TSE 300 Index for Canadian stocks, or managing
asset class exposure to match the performance of
an established policy asset mix.
Portfolio -
The collection of investment securities held by
an investor or a subset thereof.
Provincial Crown
Corporations - Special purpose companies which
carry out government programs. Provincial Crown
corporations are used because the nature of the
programs are different than those delivered through
government departments. The provincial Crown corporations
discussed in this report generally offer financial
services on a partial or full cost-recovery basis.
Alberta Opportunity Company and the Alberta Social
Housing Corporation are examples of Alberta provincial
Crown corporations.
Prudent Person Rule
- This assigns to the investment manager the responsibility
to restrict investments to assets that would be
approved by a prudent person.
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R
Real Value or
Real Rate of Return - A measure of value
or return after accounting for inflation. It is
equal to the nominal value or return less an amount
for inflation.
Realized/Unrealized
- Terms generally used to describe capital gains
or losses. A gain or a loss is realized when an
asset is sold; prior to sale the gain or loss is
unrealized and it is only a potential gain or loss.
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S
Security - Any
investment instrument such as a bond, common stock,
deed of trust on property, or any evidence of indebtedness
or equity.
Short-Term Investment
- An investment with a maturity date of less than
one year.
Small Cap -
Investment in smaller capitalized firms. Within
Canada, companies with a market capitalization of
less than 0.15% of the total Toronto Stock Exchange
market capitalization.
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T
Term-to-Maturity
- The number of years left until a bond matures.
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V
Volatility -
In financial matters, volatility of returns is the
measurement used to define risk. The greater the
volatility, the higher the risk.
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