Glossary

Active Manager Risk Budget (top)

A subjective, customized goal established to attempt to quantify and/or reduce the amount of Active Manager Risk the investor is comfortable assuming. Clients with a low tolerance for Active Manager Risk will tend to allocate more of their assets to index portfolios to help achieve low tracking error. Clients who are impervious to tracking error tend to allocate 100% to active managers. Risk budgeting is a process that combines both index and active portfolios to reach a middle ground. As a portfolio structure, it is often used to facilitate the use of active managers who have high alpha-generating potential but high tracking error. By injecting an indexed component as a complement to the active manager, the financial advisor is able to deliver a blended portfolio that helps meet a client's tolerance for tracking error risk while at the same time enabling the use of the potentially high alpha manager. For example, to constrain the tracking error of an active manager from 10% to 5%, the tool will allocate to a hypothetical portfolio that is 50% actively managed and 50% indexed. As with historical alpha, past tracking error is no guarantee of future tracking error. However, historical tracking error can serve as a guide for setting the Active Manage Risk budget, and could be adjusted by the financial advisor when using the tool to allow for interpretation of market and manager conditions.

After-tax Returns (top)

After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.

Agency Bonds (top)

A debt investment issued by government agencies including Fannie Mae, Freddie Mac, Sallie Mae, and the Federal Home Loan Banks.

Alpha (top)

The manager's return relative to the return of a benchmark. For example, consider a manager with a Russell 1000 Value benchmark. If the manager returned 7% when the Russell 1000 Value returned 6%, the alpha would be 1%. However, alpha can be both positive and negative (out-performance and underperformance).

Annual Yield (top)

The percentage of return or income, expressed in terms of dividends or interest, that an investment yields each year.

Asset Allocation (top)

The process of spreading an investment among various asset classes such as stocks, bonds, and cash equivalents.

Authorized Participant (top)

Large investors, institutions, iShares exchange specialists, and arbitrageurs that place orders for creation units with the funds' distributor.

Average Coupon (top)

The weighted average coupon of a portfolio of bonds.

Average Maturity (top)

The average time to maturity of securities held by a portfolio of bonds. Changes in interest rates have greater impact on funds with longer average maturity (see Duration).

Average Yield (top)

The market value weighted average Yield to Maturity of a portfolio of bonds.

Barbell (top)

A portfolio structuring technique that uses a mix of short- and long-term securities to achieve a targeted duration.

Basis Point (top)

A unit of measure, equal to 1/100th of 1%, or .01%. Example: 15 basis points = 15/100 of 1% or .15%.

Bond (top)

Debt security issued by entities to raise capital.

Bond Ratings (top)

There are two major U.S. bond-rating companies that assess an entity’s ability to pay debt and interest obligations: Standard & Poor’s, and Moody’s. Their grading systems vary—S&P uses capital letters such as AAA, and Moody’s uses a combination of capitals and lowercase, such as Aaa. See www.Moodys.com and www.Standardandpoors.com for more information.

Bond Returns (top)

Consist of two components: current income streams and price performance. Current income is the amount of income received from the coupon, which is expressed as a percentage of the current market value of the bond. Price performance is determined by interest rate changes. If rates rise, bond prices fall. If rates fall, bond prices rise.

Bid and Asked/Bid or Offer (top)

The price an owner offers to sell (asked or offer) and the price a prospective buyer offers to purchase (bid).

CSV Import File (top)

A comma separated value, or CSV, import file format is used as a portable representation of a database. Each line is one entry or record, and commas separate the fields in each record.

Callable (top)

Redeemable by the issuer before the scheduled maturity under specific conditions and at a stated price, which usually begins at a premium to par and declines annually. Bonds are usually called when interest rates fall so significantly that the issuer can save money by issuing new bonds at lower rates.

Cohen & Steers (top)

Founded in 1986, Cohen & Steers was the first American company formed exclusively to focus on real estate securities. The firm was founded with the belief that a well-managed portfolio of publicly traded real estate investment trusts (REITs) and other real estate companies can offer investors the beneficial investment characteristics of direct real estate ownership.

Cohen & Steers Realty Majors Index (top)

The Cohen & Steers Realty Majors Index consists of selected real estate investment trusts (REITs). The objective of the index is to represent relatively large and liquid REITs that may benefit from future consolidation and securitization of the U.S. real estate industry. The index is weighted according to the total market value of each REIT's outstanding shares and is adjusted quarterly so that no REIT represents more than 8% of the index.

Commercial Paper (top)

Short-term unsecured promissory notes issued by a corporation. The maturity of commercial paper is typically less than 270 days; the most common maturity range is 30 to 50 days or less.

Convertible (top)

A bond that may be exchanged by the owner for a fixed number of common shares of other securities (usually of the same company) in accordance with the terms of the issue.

Convexity (top)

Measures the rate of change in duration as yields change. For example, positive convexity indicates that the value of the bond will increase by more than duration predicts or decrease by less than duration predicts with a change in interest rates.

Corporate Bonds (top)

Debt instrument issued by a private corporation, rather than by a government agency or municipality.

Coupon (top)

The periodic interest payment made to bondholders during the life of the bond.

Credit Rating or Credit Quality (top)

An evaluation of a company’s ability to repay obligations (see Bond Ratings).

Current Yield (top)

Amount of coupon income to be received on an annual basis, divided by the market price of the bond.

Debt (top)

Refers to a relationship which obligates a borrower to pay interest and principal.

Default (top)

Failure to pay principal or interest on due date.

Dividend (top)

A distribution to preferred or common stockholders.

Downgrade (top)

The changing of a rating by a rating agency to a less credit-worthy rating.

Duration (top)

Measures the price sensitivity of a fixed income asset or a portfolio to interest rate changes by factoring in a bond’s yield, maturity, and any call or put features. Generally, a three-year duration portfolio will rise (fall) 3% if rates fall (rise) 1%.

Emerging Market Bonds (top)

Debt instrument issued by emerging market countries. Debt is often issued in either USD (or Euro) or local currency.

Ex-Date (top)

The date that determines who should receive the next distribution payment. In the case of fixed income iShares ETFs, a buyer transacting on or after the ex-date will not receive distribution payments.

Exchange Traded Funds (top)

Exchange-traded funds (ETFs) are investment vehicles that are constructed like a mutual fund but trade like an individual security on a stock exchange. Created in 1993, these instruments have been widely used by institutional investors and retail investors.

Face Value/Par Amount (top)

The face amount, or face value, of a security is the amount the issuer pays the holder at maturity. Different security types have different face value denominations. Most bonds are quoted in multiples of $1,000 face value. For example, 50 bonds would be equivalent to holding $50,000 face value of a bond.

Free-Float (top)

Free-float refers to the amount of a company's shares outstanding that are available for purchase on the open market at any point in time.

Governments (top)

Shorthand for government securities issued by governments such as the U.S. Treasury Department, including bills, notes and bonds. Federal agency securities, which are also backed by the government, may be called governments. Government backing applies only to the timely payment of principal and interest and does not eliminate market risk.

Growth-Oriented Stocks (top)

Stocks of corporations that have exhibited faster-than-average gains in earnings over several years and are expected to continue to show high levels of profit growth. Typically riskier than average stocks, they exhibit higher price/earnings ratios and often make little or no dividend payments to shareholders.

Held (top)

1. To possess a security after a purchase, or 2. The acceptance of liability for the quality of an execution.

High Yield (Junk) Bond (top)

A bond with a speculative credit rating of BB (S&P) or Ba (Moody’s) or lower. High-yield bonds offer investors higher yields than bonds of investment-grade companies, and accordingly are more volatile than investment-grade bonds.

Hybrid (top)

A security with mixed characteristics. For example, a convertible bond. It can have a coupon and pay interest and therefore partially behave like a credit market instrument. However, its conversion feature also imbues the instrument with equity characteristics.

Internal Rate of Return (IRR) (top)

Internal Rate of Return (IRR) is the discount rate at which the present value of the future cash flows of an investment equal the cost of the investment. It is found by a process of trial and error; when the net present values of cash outflows (the cost of the investment) and cash inflows (returns on the investment) equal zero, the rate of discount being used is the IRR.

Investment-Grade Bonds (top)

A bond with an assigned rating in the top four categories by commercial credit rating companies: S&P, which classifies investment-grade bonds as BBB or higher; and Moody’s, which classifies investment-grade bonds as Ba or higher.

Junk (High Yield) Bond (top)

A bond with a speculative credit rating of BB (S&P) or Ba (Moody’s) or lower. High-yield bonds offer investors higher yields than bonds of investment-grade companies, and accordingly are more volatile than investment-grade bonds.

Laddering (top)

A fixed income portfolio strategy that distributes assets over a range of maturities.

Large-Cap U.S. Companies (top)

Generally speaking, companies with market capitalizations greater than $10 billion.

Liquidity (top)

The ability to convert a security or asset quickly into cash.

MSCI Indexes (top)

The MSCI indexes encompass 23 developed, 25 emerging, and 22 frontier markets.

Mid-Cap U.S. Companies (top)

Generally speaking, companies with market capitalizations between $1.5 billion and $10 billion.

Mortgage-Backed Security (top)

An investment instrument that is backed by a mortgage or pool of mortgages.

Municipal (top)

Debt obligation of a state or local government.

Nasdaq Biotechnology Index (top)

The NASDAQ Biotechnology Index contains securities of NASDAQ® listed companies that are classified according to the Industry Classification Benchmark as either biotechnology or pharmaceuticals which also meet other eligibility criteria determined by NASDAQ, including minimum market capitalization and liquidity requirements.

The Nasdaq Stock Market (top)

The Nasdaq Stock Market, which debuted in 1971 as the world's first electronic stock market, is the fastest growing stock market in the United States. Nasdaq trades more shares per day and has a greater dollar volume of trades than any other U.S. equities market.

Nominal Return (top)

Describes a change in value, including the price rise associated with inflation.

Nominal Yield (top)

The rate listed on the face of a bond; coupon rate.

Par Amount/Face Value (top)

The amount the issuer pays the holder at maturity. Different security types have different face value denominations. Most bonds are quoted in multiples of $1,000 face value. For example, 50 bonds would be equivalent to holding $50,000 face value of a bond.

Post-Liquidation (top)

Return after taxes on distributions. Assumes fund shares have been sold.

Pre-Liquidation (top)

Return after taxes on distributions. Assumes fund shares have not been sold.

Promissory Note (top)

A written pledge to pay a debt.

Puttable (top)

A bond holder has the option to sell the bond back to the issuer before the scheduled maturity under specific conditions and at a stated price.

Rate of Return (top)

The change in the value of an investment, including capital appreciation (or loss) plus cash yield, divided by the initial value.

Real Yield (top)

Commonly used in the Treasury Inflation-Protection Securities Market. Real yield represents the yield earned by TIPS bonds assuming that future inflation is zero.

Record Date (top)

The date determining who will be paid principal, interest and prepayment on a security.

Redeem (top)

To exchange fund shares for their present value in either cash or "in-kind" securities.

Russell 1000 Index (top)

This index measures the performance of the 1,000 largest companies in the Russell 3000 Index, representing approximately 92% of the total market capitalization of the Russell 3000 Index.

Russell 2000 Index (top)

This index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, representing approximately 8% of the total market capitalization of the Russell 3000 Index.

Russell 3000 Index (top)

This index measures the performance of 3,000 publicly held U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. market.

S&P 500 Index, S&P 500 (top)

Widely regarded as the standard for measuring large-cap U.S. stock market performance, this index includes a representative sample of leading companies in leading industries.

S&P Growth and Value Indexes (top)

Companies in each U.S. index are split into two groups based on price-to-book ratio to create growth and value indexes. The value index contains companies with lower price-to-book ratios, while the growth index contains those with higher ratios.

S&P MidCap 400 Index, S&P 400 (top)

This index measures the performance of the mid-size company segment of the U.S. market, covering over 7% of the U.S. equities market.

Small-Cap U.S. Companies (top)

Generally speaking, companies with market capitalizations less than $1.5 billion.

Spread (top)

The gap between bid and ask prices of a security.

Swaps (top)

The practice of simultaneously buying and selling a security, currency, bond, mortgage, commodities or interest-rate contract. Typically, investors engage in swaps because their investment objectives have changed, or because they want to minimize the risk associated with fluctuating currency or interest rates. A bond swap, for example, might help an investor adjust yields or maturities of his portfolio.

Tracking Error (top)

Tracking Error measures the performance of a fund against its benchmark index. Like other index funds, iShares ETFs are designed to match the returns of their benchmark indices. However, all index funds may experience differences between the fund's return and the index return. This is because an index is a theoretical portfolio and its performance is calculated regardless of frictions and costs that exist in the real world. The difference between the historical performance of the fund and its benchmark is called performance difference. To evaluate the future risk of performance difference some analysts consider the Tracking Error, a measure of how consistently the fund returns have matched its benchmark historically. Mathematically Tracking Error is typically expressed as the standard deviation of performance differences over time.

Treasury Inflation-Protection Securities (TIPS) (top)

Inflation-indexed securities issued by the U.S. Treasury Department. TIPS adjust both their principal and coupon payments upward with any rise in inflation. They enjoy the full guarantee of the U.S. government. Government backing applies only to the timely payment of principal and interest and does not eliminate market risk.

Treasuries (top)

Negotiable debt obligations of the U.S. government, secured by its full faith and credit and issued at various schedules and maturities. Treasuries are generally non-callable. Government backing applies only to the timely payment of principal and interest and does not eliminate market risk.

Treasury Bill (top)

A non-interest-bearing obligation, fully guaranteed by the U.S. government, payable to the bearer. Bills are sold on a discount basis so that the income is the difference between the purchase price and the face value. They have maturities of one year or less. Government backing applies only to the timely payment of principal and interest and does not eliminate market risk.

Treasury Bond (top)

A coupon security of the U.S. Treasury. Treasury Bonds may be issued with any maturity, but usually carry a maturity of more than 10 years.

Treasury Note (top)

A coupon security issued by the U.S. Treasury with a maturity of not less than one year and not more than 10 years.

Treasury Strips (Zero Coupons) (top)

Broker/dealers repackage Treasury cash flows to create “strip” securities. Strips have varying maturities, trade on a discount basis, pay no coupon, and mature at par.

Turnover (top)

The rate at which securities within a portfolio are exchanged for other securities.

Upgrade (top)

The changing of a rating by a rating agency to a higher (more credit worthy) rating.

Value-Oriented Stocks (top)

Stocks of corporations that are "cheap" by traditional yardsticks in comparison to their price/earnings ratio, price/book ratio, and yield.

Volatility (top)

Measures the variation of securities’ returns and interest rates over time.

Weighted Average Coupon (top)

The mean of the coupon rate of the underlying bonds in a portfolio.

Weighted Average Maturity (top)

The mean of the remaining term to maturity of the underlying bonds in a portfolio.

World Equity Benchmark Shares (WEBS) (top)

WEBS were a form of exchange traded fund and traded on the American Stock Exchange. They were re-named iShares MSCI Index Shares on March 15, 2000, and are part of the iShares investment family along with new iShares MSCI Index Funds. iShares MSCI Index Funds track the performance of several international equity indexes. Each country index series invests in an optimized portfolio of common stocks based on that country's MSCI benchmark country index. (See Exchange Traded Funds.)

Yankee Bond (top)

A U.S.-dollar-denominated bond sold in the U.S. and issued by foreign banks and corporations.

Yield (top)

The return on a security or portfolio, in terms of cash payments. A percentage obtained by dividing the current dollar income by the current market price of the security.

Yield Curve (top)

A graph that shows the comparative yields of securities in a particular class, such as Treasury securities. The yield curve is normally upward-sloping, with long-term rates higher than short-term rates. When the yield curve is inverted, short-term rates are higher than long-term rates.

Yield Curve Risk (top)

The risk exposure a security or portfolio has during nonparallel shifts in the yield curve.

Yield To Call (YTC) (top)

The yield of a bond if the investor buys and holds the security until the call date. The calculation of yield to call is based on coupon rate, length of time to call, and market price. This calculation assumes that intermediate cash flows are invested at the YTC, and that the security is called on the call date.

Yield To Maturity (YTM) (top)

The internal rate of return of a bond. The calculation of YTM accounts for the following items from settlement to maturity: coupon income, redemption value, interest earned on interest, and timing of each cash flow. This calculation assumes that intermediate cash flows are reinvested at the YTM, and that the bond is held to maturity.

Yield To Worst (top)

The bond yield computed by using the lower of either the yield to maturity or the yield to call/put on call/put dates. This calculation assumes that intermediate cash flows are invested at the yield to worst, and that the security is called on the lower of either the yield to maturity or the yield to call/put on call/put dates.

Zero-Coupon Bonds (top)

A bond that is sold at a discount to its face value, instead of making periodic interest payments during the life of the bond.

Zip file (top)

Zip files are "archives" used for distributing and storing compressed format files. One or more files can be compressed in size to save space and then stored in a Zip file. Storing files in Zip format enables the user to download multiple documents as one file resulting in faster download time.