TERMS

Basis points (bps): 1/100th of 1 percent.

Beta: A measure of the volatility of a security or a portfolio in comparison to a benchmark. In general, a beta of less than 1 indicates that the investment is less volatile than the benchmark, while a beta of more than 1 indicates that the investment is more volatile than the benchmark.

Bull market: A market in which share prices are rising, encouraging buying.

Commodity: A raw material or primary agricultural product that can be bought and sold.

Earnings growth: The annual compound annual growth rate of earnings from investments.

Federal Funds (Fed Funds): Excess reserves that commercial banks and other financial institutions deposit at regional Federal Reserve banks.

Federal Reserve (Fed): The Federal Reserve System is the central banking system of the United States.

Floating rate notes (FRNs): A debt instrument with a variable interest rate.

Gross domestic product (GDP): The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific period.

Growth stocks: Stocks whose share prices are higher relative to their earnings per share or dividends per share. Investors are willing to pay more because of their earnings or dividend growth expectations going forward.

Inflation: Characterized by rising price levels.

Market capitalization: Market cap = share prices x number of shares outstanding. Firms with the highest values receive the highest weights in approaches designed to weight firms by market cap.

Maturity: The amount of time until a loan is repaid.

Monetary policy: Actions of a central bank or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects interest rates. Operating earnings: The profit earned after subtracting from revenues only those expenses that are directly associated with operating the business.

Price-to-earnings (P/E ratio): The ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS).

Quality: Characterized by higher efficiency and profitability. Typical measures include earnings, return on equity, return on assets and operating profitability. This term is also related to the quality factor, which associates these stock characteristics with excess returns versus the market over time.

Real effective exchange rate (REER): The weighted average of a country’s currency relative to an index or basket of other major currencies, adjusted for the effects of inflation. Recession: Two consecutive quarters of negative GDP growth, generally characterized by a slowing economy and higher unemployment.

Return on assets (ROA): Firm profits (after accounting for all expenses) divided by the firm’s total assets. Higher numbers indicate greater profits relative to the level of assets utilized to generate them.

Return on equity (ROE): Measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.

Size capitalization: A measure by which a company’s size is classified. Large caps are usually classified as companies that have a market cap of more than $10 billion. Mid-caps range from $2 billion to $10 billion. Small caps are typically new or relatively young companies and have a market cap between $200 million and $2 billion.

Sovereign debt: Bonds issued by a national government in a foreign currency in order to finance the issuing country’s growth.

Treasury Inflation-Protected Securities (TIPS): A type of Treasury security issued by the U.S. government. TIPS are indexed to inflation in order to protect investors from a decline in the purchasing power of their money.

U.S. Treasury (UST): Debt that is issued by the United States.

U-3 unemployment level: The official unemployment rate. It measures the number of people who are jobless but actively seeking employment.

U-6 partial employment level: The percentage of workers who are involuntarily working at less than full employment.

Value: Characterized by lower price levels relative to fundamentals, such as earnings or dividends. Prices are lower because investors are less certain of the performance of these fundamentals in the future. This term is also related to the value factor, which associates these stock characteristics with excess returns versus the market over time.

Yield: The income return on an investment. Refers to the interest or dividends received from a security that is typically expressed annually as a percentage of the market or face value.

Zero interest rate policy (ZIRP): A monetary policy whereby interest rates, such as Fed Funds, are kept close to or at zero.

INDEX DEFINITIONS

Bloomberg Aggregate Bond Index: A broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.

CBOE S&P 500 Volatility Index® (VIX®): A key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It is the premier benchmark for U.S. stock market volatility.

Conference Board Consumer Confidence Index: The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The Conference Board is a global, independent business membership and research association working in the public interest.

Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

Dow Jones FXCM Dollar Index: The value of the United States dollar relative to a basket of four currencies: the euro, the British pound, the Japanese yen and the Australian dollar.

ICE U.S. Dollar Index: A geometrically-averaged calculation of six currencies weighted against the U.S. dollar.

MSCI ACWI Index: A free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets.

MSCI EAFE Index: A market cap-weighted index composed of companies representative of the developed market structure of developed countries in Europe, Australasia and Japan.

MSCI EAFE Mid Cap Index: A free float-adjusted market capitalization-weighted equity index that captures mid-cap representation across developed market countries around the world, excluding the U.S. and Canada.

MSCI EAFE Small Cap Index: A free float-adjusted market capitalization-weighted equity index that captures small-cap representation across developed market countries around the world, excluding the U.S. and Canada.

MSCI Emerging Markets Index: A broad market cap-weighted index showing the performance of equities across 24 emerging market countries defined as “emerging markets” by MSCI.

MSCI Emerging Markets Small Cap Index: A market capitalization-weighted subset of stocks in the MSCI Emerging Markets Index that includes small-cap representation across 24 emerging markets countries.

MSCI Emerging Markets Value Index: A market capitalization-weighted subset of stocks in the MSCI Emerging Markets Index that have lower share prices relative to their earnings or dividends per share or lower prices relative to other financial metrics.

MSCI USA Growth Index: A large and mid-cap U.S. equity index aiming to capture securities exhibiting overall growth-style characteristics.

National Association of Home Builders (NAHB) Market Index: The National Association of Home Builders (NAHB) Housing Market Index (HMI) rates the relative level of current and future single-family home sales. The data is compiled from a survey of around 900 home builders. A reading above 50 indicates a favorable outlook on home sales; below 50 indicates a negative outlook.

NFIB Small Business Optimism Index: NFIB Research Foundation has collected Small Business Economic Trends Data with quarterly surveys since 1973 and monthly surveys since 1986. The sample is drawn from the membership files of the National Federation of Independent Business (NFIB).

Purchasing Managers’ Index (PMI): An indicator of the economic health of the manufacturing sector. The PMI is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month, below 50 represents a contraction, while 50 indicates no change.

Russell 1000 Index: A measure of the performance of the 1,000 largest companies by market capitalization in the Russell 3000 Index.

Russell 2000 Index: Measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is a subset of the Russell 3000 Index, representing approximately 10% of the total market capitalization of that index.

S&P 500 Index: A market capitalization-weighted benchmark of 500 stocks selected by the Standard and Poor’s Index Committee designed to represent the performance of the leading industries in the United States economy.

S&P 400 Index: A market capitalization-weighted index that serves as a gauge for the U.S. mid-cap equities sector.

S&P 600 Index: A market capitalization-weighted index that serves as a gauge for the U.S. small-cap equities sector.

S&P Global Infrastructure Index: Designed to track 75 companies from around the world chosen to represent the listed infrastructure industry while maintaining liquidity and tradability. To create diversified exposure, the index includes three distinct infrastructure clusters: energy, transportation and utilities.

S&P Global REIT Index: Serves as a comprehensive benchmark of publicly traded equity REITs listed in both developed and emerging markets.

S&P GSCI Index (Copper/Agriculture/Softs/Precious Metals/Non-Precious Metals/Energy): A leading measure of general commodity price movements and performance over time.

S&P US Preferred Stock Index: Designed to serve the investment community’s need for an investable benchmark representing the U.S. preferred stock market. Preferred stocks are a class of capital stock that pays dividends at a specified rate and has a preference over common stock in the payment of dividends and the liquidation of assets.