Ratio withdrawal plan
Plan offered by mutual fund companies whereby the investor receives income based on a percentage of the value of the units or shares held in the plan.
RBC DS Canadian Bond Market Index
Index that includes over 800 securities that mature in one year or more. The index reflects the total return posted by the Canadian bond market.
Real estate investment trust
Mutual fund that invests mainly in commercial and/or residential real estate and aims to generate income and capital gains.
Redeemable share (at the option of the corporation)
Share that the issuing corporation can redeem at any time, at a specified price.
Redeemable share (at the option of the holder)
Preferred share which may be redeemed at the option of the holder on a set date and under specified conditions.
Fees paid when mutual fund units are sold or redeemed.
Registered education savings plan (RESP)
Investment program that allows the accumulation of tax-sheltered contributions until the child begins post-secondary studies. The plan benefits from the Canadian Education Savings Grant (CESG).
Registered retirement income fund (RRIF)
Income tax deferral method available to the holder of a Registered Retirement Savings Plan. The holder invests the amount withdrawn from the RRSP into the RRIF, and each year is required to withdraw a portion. The withdrawals are then taxable.
Registered retirement savings plan (RRSP)
Plan that enables an individual investor to postpone the payment of tax on funds set aside for retirement purposes. The holder invests in one or several types of investments that are held in trust under the terms of the plan. The tax payable on contributions and capital gains earned on investments is deferred and charged upon withdrawal at retirement.
Retained earnings (RE)
A corporation's accumulated net profits. They may or may not be reinvested in the business.
Bond that may be redeemed by the holder prior to maturity.
Income or capital gain resulting from an investment.
Return on investment
The profit made from an investment. The return on investment ratio is the percentage obtained by dividing net earnings by the invested capital. For example, a $1,000 investment resulting in annual net earnings of $150 will have a 15% return on investment.
Consists essentially of converting the value of your property into retirement income for a certain number of years. The amounts received will bear interest and grow over time until they reach a specified percentage (i.e. 60-75%) of the current market value of your property. At maturity, you sell your property and reimburse the financial institution for the accumulated value of the amounts received over the period of the reverse mortgage.
The main prerequisite for a reverse mortgage is that your property be entirely or very nearly mortgage-free.
Possibility of future loss.
The return on a fund (or an index) less the risk-free return rate. Risk-free rates are represented by the return generated by short-term federal government bonds (91-day Treasury bills).
Standard number of shares set by stock markets for trading purposes. The number of shares in a round lot varies based on the security price, but for the most part, a round lot is 100 shares.
Index that reflects the return of the Canadian stock market. It represents the weighted average of a number of companies listed on the Toronto Stock Exchange. The index is divided into 10 different sectors.
S&P/TSX 60 Index
Index that reflects the weighted average of the 60 largest and most liquid Canadian corporations.
S&P 500 Index
Index that measures the overall performance of the U.S. economy by tracking changes in the market value of 500 stocks representing major corporations in all industries.
Scotia Capital 91-day T-Bill Index
Index that tracks the daily return on 91-day Canadian Treasury bills.
Scotia Capital Mortgage Index
Index that reflects the overall performance of a sample of Canadian mortgage-backed securities with maturities of 1, 3 or 5 years (data provided by the major Canadian chartered banks).
Scotia Capital Short-Term Bond Index
Index that measures the return on over 350 Canadian government and corporate bonds with maturities between 1 and 5 years.
Scotia Capital Universe Bond Index
Index designed to reflect the overall performance of the Canadian bond market. The index includes Canadian bonds issued by various government agencies and corporations (rated BBB and higher).
Scotia Quebec 90 Index
Index that tracks the daily performance of the 90 largest Quebec-based companies. The index includes 30 large-cap and 60 small-cap companies in Quebec.
Market where investors trade with one another. This allows investors to sell the securities bought on the primary market and obtain cash.
Provincial legislation applied by the Securities Commission in each province that govern how securities may be issued and traded.
Brokerage firm or individual associated with a brokerage firm that underwrites issues or carries out transactions on debt securities as a market maker. A securities broker holds the traded securities or acts on behalf of a client. When acting on behalf of a client, a securities broker generally does not hold traded securities, and his commission is equal to the brokerage fee charged on each transaction.
Purchase or sale of securities on stock or over-the-counter markets.
Investment instrument offered by a corporation, a government or other organizations. Securities may include common and preferred shares, debt instruments and mutual fund units.
Fund offered by insurance companies as a substitute for mutual funds. Like mutual funds, they offer a variety of investment objectives and asset categories. They guarantee that investors will receive a minimum percentage of the invested amount at maturity (generally at least 75%).
Sale of securities not owned by the seller. Speculative technique used to take advantage of an anticipated decline in the price, enabling the investor to buy the securities at a lower price and thus make a profit.
Date by which the seller must deliver the securities bought by a client, and by which the buyer must pay for the purchase. The settlement date is generally the third business day following the transaction.
Unit of ownership in a corporation's capital stock.
Bond or debenture that matures within three years.
Corporate debt obligation coming due within one year. Short-term debt generally includes bank loans, notes payable and the current portion of long-term debt.
An abbreviated and simplified prospectus distributed by mutual fund companies to unitholders or shareholders and potential buyers.
Certificates that represent ownership in foreign corporations that are tracked by a Standard & Poor's index. SPDRs enable investors to buy shares in corporations listed on the S&P 500 index in a single security.
Mutual fund that focuses its investments in a specific economic sector, industry or geographic region.
Difference between bid and ask prices for a security.
Statistical measure that indicates the average monthly variation of an investment return. Data from the previous 36 months, at least, are used to calculate the standard deviation for a fund.
Increase in a corporation's number of outstanding shares of stock (each share will be split into X new shares). A holder of 100 shares of Y at $20 each will have 200 Y shares at $10 each if the stock splits 2 for 1.
Stock savings plan (SSP)
Plan in which certain provinces grant individual investors a tax deduction or tax credit on investments in certain stocks. The credit or deduction represents a percentage of the investment value.
Strategic asset allocation
Apportioning funds among the various categories of assets in order to maintain a relatively stable allocation. Strategic allocation is based on long-term economic and financial forecasts and seeks to maximize return while minimizing risk.
Style - Bottom-up approach (shares)
This approach focuses on individual companies, rather than the industry in which they operate. Unlike the top-down approach, this approach assumes that a company that shows outstanding qualities will generate higher long-term returns, regardless of the industry or country where it operates.
Style - Growth investing (shares)
Managers who adopt this approach are willing to pay a higher price for future earnings, given the above-average growth forecasts for these stocks. Unlike value investing, the company's potential is well known to the market, resulting in a share price that is somewhat high with respect to reported earnings. Therefore, these companies typically carry higher price/earnings ratios.
Style - Interest-rate anticipation (fixed income)
Under this approach, the manager changes the average maturity and, as a result, the term of his bond portfolio, based on anticipated interest-rate movements. An anticipated rate hike will result in a shorter average maturity, whereas an anticipated drop in rates will extend maturities. The aggressiveness of the management style will be reflected in the range of changes made to the portfolio.
Style - Momentum investing (shares)
According to this approach, managers take advantage of a stock's upward momentum. They select companies that not only report growth in earnings but also have a higher rate of growth. This type of management is considered to be quite aggressive, given that any sign of slower growth causes investors to unload their shares. Therefore, under momentum investing, transactions are frequent and investors benefit little from deferral of capital gains.
Style - Sector rotation approach (shares)
This approach is directly related to the top-down approach. A manager using this approach will invest primarily in sectors with the highest potential and will invest in these sectors in proportions that are higher than the reference index allocation. This approach is considered to be quite aggressive given that it increases fluctuations in returns compared with the reference index. As a result, when the manager overweights sectors on the upswing, the performance is outstanding, but when the overweighted sectors underperform, the returns are disappointing. This approach typically results in frequent transactions given that the manager follows the economic cycle. Therefore, the investor benefits very little from deferral of capital gains.
Style - Spread analysis (fixed income)
Primarily used in the management of provincial and corporate bond funds, this approach conducts a detailed analysis of an issuer's credit risk. The return is then measured against the level of risk to identify and benefit from any discrepancies. Securities with an above-average return given the identified level of risk are preferred. The manager may regularly shift the percentage allocated to each bond category (corporate, provincial, federal) based on economic forecasts in an attempt to benefit from the increase or decrease in yield spreads between the categories. For example, if the manager expects a recession, he may increase the proportion of federal bonds held in the portfolio and if he expects strong economic growth, he may overweight corporate bonds. This approach is often used for high-return funds.
Style - Top-down approach (shares)
With this approach, management relies heavily on macroeconomic analysis. The manager chooses the sectors or, in the case of international management, the countries that are likely to generate higher returns. Proponents of this approach maintain that the overall growth of a sector or a country will have a significant impact on the performance of an individual stock. In other words, it is advisable to invest in a company operating in a sector or economy experiencing growth rather than a company that appears to be of higher quality but operates in a less favourable environment.
Style - Value investing (shares)
Managers using this approach search for companies with price/earnings ratios considered to be low. As the market recognizes a company's value, the price/earnings ratio and the share price will rise. Instead of being based on dramatically improved financial results, this value will be derived from factors such as a competitive edge, superior technology or an outstanding management team.
Temporary privilege entitling common shareholders to purchase other common shares directly from the corporation. Rights are issued to shareholders based on the number of shares they hold.
Security that entitles the holder to buy stock at a specified price and for a specified period. Generally, they are offered as a sweetener at the time of a new issue.
Amount an insured can receive upon voluntary cancellation of a life insurance policy.
Systematic risk (non-diversifiable risk)
Risk that affects a security or portfolio due to its relationship with the market. Also known as market risk. The measure of systematic risk is the beta coefficient.
Systematic withdrawal plan
Plan offered by mutual fund companies whereby the investor receives income from his investment on a regular basis.
Tactical asset allocation
Overweighting asset categories that are likely to outperform in the coming months and underweighting other categories. The shifts in asset percentages of a portfolio are based on short-term economic and financial forecasts and seek to maximize return while minimizing risk.
Offer made to security holders of a corporation to purchase a given number of voting shares that, with the offeror's already owned shares, will in total exceed 20% of the outstanding voting shares of the target corporation. For federally incorporated companies, the equivalent requirement is more than 10% of the outstanding voting shares.
Total taxes levied on a given taxpayer.
Amount that can be deducted from tax payable.
Amount that may be deducted from total income before determining tax payable.
Tax Free Savings Account (TFSA)
Investment vehicle that enables investors to build up savings in a tax-free environment, regardless of the annual income level. The investment income earned in a TFSA is not taxable, even if withdrawn. Funds invested in a TFSA may be withdrawn at any time for any purpose. Also, any unused contribution may be carried forward to subsequent years.
Method of evaluating securities and future market trends based on the statistical analysis of price changes, trading volume and other variables to create a benchmark. Technical analysis is used to anticipate changes in stock prices.
Weighted average of the discounted value of principal and interest payments on a bond, expressed in years.
Term life insurance
Life insurance that offers protection for a specified period.
TIP & HIP
TIPs and HIPs are units in a fund made up of a basket of shares tracked by an index. TIPs allow investors to buy shares of companies listed on the TSE 35 and HIPs are keyed to the TSE 100. TIPs fluctuate in step with the TSE 35 index, and one TIP is equal to a tenth of the value of the index plus accrued dividends. If the TSE 35 is quoted at 350, the cash value of one TIP would be approximately $35 plus accrued dividends. HIPs have the same structure as TIPs but their value is linked to the TSE 100.
Difference between the total value of a country's exports in goods and services and the total value of its imports in goods and services in a given period.
Consist mainly of the commission paid to the broker or representative by the mutual fund company.
A short-term debt security issued by the federal government, usually for a term of 3 months to 1 year. Denominations vary from $1,000 to $1,000,000. Treasury bills do not pay interest but are sold at a discount (below par). The difference between the issue price and the par value at maturity represents the income which the lender or purchaser receives in lieu of interest. The gain is taxed as interest income.
Relationship in which a person transfers title to property to another person, called the trustee, who undertakes to hold and administer the property for the benefit and use of a designated beneficiary.
The frequency with which a manager renews his portfolio. For example, a 200% turnover rate over one year means the manager fully renewed the portfolio twice, whereas a 50% turnover rate means he renewed only half of the portfolio.
A security that underlies derivatives such as options.
Under par (discount)
Said of a security (generally a bond) that is sold under its nominal value. For example, Treasury bills are always sold at a discount.
Investment company that buys securities directly from the issuer for resale to other investment companies or the public or for sale to the public on behalf of the issuer.
Investor who purchases mutual fund units.
The price of most fund units is calculated daily. However, some funds calculate the unit price on a weekly, monthly or quarterly basis. It is important to know when the unit price is determined given that units can be bought or sold at that time.
Unsystematic risk (diversifiable risk)
Risk that leads to an increase or a drop in the value of a security or portfolio and is unrelated to the market.
U.S. equity fund
Mutual fund that generates long-term capital growth by investing mainly in common shares of U.S. corporations.
Life annuity whose value fluctuates based on the return on investments.
Entitlement of a pension plan participant who fulfills certain conditions to receive pension benefits whether or not the participant is still working for the same employer. All or part of the employer's contributions are then vested and the participant receives a deferred pension or a lump sum.
A measure of the fluctuations in the price of a security over a given period. Volatility is generally expressed as the standard deviation of the daily price fluctuations of a security on an annual basis.
Whole life insurance
Life insurance for which the policyholder pays an annual premium, normally until the death of the insured. This type of insurance policy includes a savings portion known as the surrender value.
An account that charges fees only once a year based on the total assets in the account rather than brokerage fees for each transaction. Each account is managed separately, in accordance with a portfolio model suitable for clients who share the same objectives.
Graph that plots the yields of bonds of the same quality with different maturities.
Yield to maturity
The annual rate of return an investor receives on a bond if held until maturity.