| Alpha
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A measure of a portfolio's return in excess of the market return, both adjusted for risk. It is a measure of the manager's contribution to performance due to security selection. A positive alpha indicates that the portfolio outperformed the market on a risk-adjusted basis, and a negative indicates the portfolio did worse than the market.
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| Annualized Rate of Return
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See "Rate of Return, Annualized".
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| Beta
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A measure of the sensitivity of a portfolio's rate of return against that of the market. A beta greater than 1.00 indicates volatility greater than the market.
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| Convexity
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Convexity captures the change in duration with respect to changes in interest rates. For all option-free fixed income securities (i.e., Treasury securities), duration increases as yields decline. Conversely, when yields increase, duration will decrease. This attractive feature is positive convexity which enhances option-free bond price performance. Mortgage-backed securities and callable corporate bonds have embedded options and do not exhibit positive convexity.
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| Duration
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Represents the weighted average term to maturity of Bond cash flows (coupon and principal maturity) expressed in present value terms. This measure is generally used to reflect the sensitivity of a bond's price to changes in interest rates.
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| Indices
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Policy Index - A custom benchmark consisting of a number of indices which are weighted based on the asset allocation targets within the investment policy.Measures the return of the asset allocation strategy if it were implemented using passive (index) portfolios.
Actual Index - A custom benchmark consisting of a number of indices which are weighted based on the allocation of each asset class within the overall structure at the beginning of each quarter. Measures the return of the current asset allocation if it were implemented using passive (index) portfolios.
The difference between the Actual Index and the Policy Index measures allocation effect, the impact of the decision to allocate the total fund differently than the policy mandates.
The difference between the Total Fund Return and the Actual Index measures the manager selection effect, how the management team performed versus a passive strategy.
The difference between Total Fund Return and the Policy Index measures both the allocation effect and the manager selection effect.
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| Market Proxy
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The relevant benchmark for comparing individual managers or a composite. It is the benchmark used to represent either the broad market or a segment of the market.
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| Quartile
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Displays the distribution of the rates of return for the universe. The rate of return is reported in annualized time-weighted values. Appropriate market indexes are indicated at the side of each time bar. Each quartile segment within a bar contains 25% of the institutions in the universe for that time period. The median value is shown by a solid line on each bar. The upper and lower quartile breakpoints are shown as dotted lines on each bar. The quartile chart shows the rate of return for individual portfolios and allows an immediate comparison against the universe. The hash marks at the top and bottom of the quartile bar indicate the 5th and 95th percentile of the universe, respectively. (Click here to see a sample.)
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| R-Squared (R2)
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A measure of diversification that indicates the extent to which fluctuations in portfolio returns are explained by market action. An R2 of 0.75 implies that 75% of the fluctuation in a portfolio's return is explained by the fluctuation in the market.
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| Rate of Return
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Percentage change on an investment including appreciation or depreciation and dividends or interest.
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| Rate of Return, Annualized
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Expresses the rate of return over a given time period on an annual basis or as a return per year.I t is computed on a time-weighted basis.
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| Risk-Free Proxy
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Represents investment vehicles with essentially no risk, e.g. US Treasury bills. In the US, the Citigroup 3-Month Treasury Bill Index is used as a proxy for a risk-free universe return. Outside the US, short-term government instruments are used to compare the returns of risky investment vehicles to the return of the risk-free alternative.
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| Risk/Return Diagram
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Displays rates of return and standard deviations (a measure of risk) for a variety of time periods. The annualized standard deviation is plotted on the horizontal axis. The annualized time-weighted rates of return are plotted on the vertical axis. The solid horizontal and vertical lines within the graph represent the median return and standard deviation, respectively. The diagonal line represents the market line. The vertical distance of each portfolio symbol from the market line represents the Alpha (see earlier definition).
For ease of interpretation of the portfolio's risk and return parameters relative to the market, we have provided a means for constructing a theoretical capital market line on the scatter diagrams. The short hash mark on the vertical axis indicates the intercept of the line connecting the market index with the point where Treasury bills would be plotted on the given scale at a standard deviation near zero. A capital market line can be drawn across the graph through the mark and the market index plot. Additionally, several indexes may be shown to indicate the performance of the market. (Click here to see a sample.)
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| Standard Error
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A measure of the variability of a portfolio's return that cannot be explained by market fluctuations. A low standard error indicates that portfolio returns are closely correlated with market returns (as a result of a high degree of diversification).
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| Standard Deviation
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Used extensively as a measure of dispersion about the average (mean) in applied statistics. It is a good measure of the historical variability of the return earned by an investment portfolio. The assumption is that greater variability in the rate of return connotes greater risk undertaken in achieving the return.
For example, one would prefer a portfolio that earns 5% each period to one that alternates between a return of zero in one period and a 10% the next. Thus, a general rule for evaluating portfolio performance is that, for any given rate of return, the portfolio that provides the least standard deviation is best; and for any given standard deviation, the portfolio that provides the highest rate of return is best.
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| Universe Median Standard Deviation
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The value of the middle observation when annualized standard deviations of the universe portfolios are ranked in ascending or descending order.
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| Universe Median Return
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The value of the middle observation when returns of universe portfolios are ranked in ascending or descending order.
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| Universe Mean Standard Deviation
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The annualized standard deviation of quarterly universe means.
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| Universe Quarterly Mean Return
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Calculated by adding the returns of the portfolios in the universe and dividing by the number of portfolios for a quarter. The quarterly means are then chain-linked to obtain longer term results.
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