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Glossary

Active Positions
The difference between a portfolio weighting and the benchmark weighting.

AFFSI
The Adjusted Free Float Share Index is a hybrid of the FTSE/JSE ALSI and the FTSE/JSE Financial & Industrial Index (FINDI). The Resource component in the AFFSI has been reduced to provide more optimal risk-return characteristics, especially regarding single-share weightings. The AFFSI is used as the benchmark for the Pure Equity Local Portfolio.

ALBI
Bond Exchange Association of South Africa All Bond Index (Total Return Index). The ALBI is used as the benchmark for the Pure Fixed Interest Local Portfolio.

ALSI
FTSE/JSE All Share Index.

Arbitrage
Arbitrage is the process of taking advantage of mis-pricing between two related or highly correlated instruments. Arbitrage returns are characterised by low volatility and are neutral versus market movements (note that market neutral does not mean risk free). Examples of arbitrage strategies are the exploitation of distortions between:

  • The theoretical index futures price and its actual price
  • The shares of a company that is due to be taken over and the shares of the purchasing company
  • The price of a stock and the price of the matching warrant
  • A convertible bond and its underlying stock.

Asset Allocation
The allocation of a portfolio’s assets between different asset classes, ie equities, bonds, cash and property.

Bonds
A debt note issued by government, local authorities, or other organisations (for example, Eskom) to a lender, promising to pay interest periodically and to repay the capital at a predetermined date.

Cash Deposits
Short-term deposits.

Citi WGBI
Citi World Government Bond Index. The Citi WGBI is used as 40% of the benchmark for the Global Bond Portfolio.

Comparative Indices
Indices that, in terms of applicability to portfolios, are useful for comparison with a portfolio.

CPI
Consumer Price Index.

CTA
CTA investment managers started out as commodity traders, hence the name commodity trading advisers. The strategy has evolved and traders utilise all investment areas, including futures and options on shares, bonds, commodities and currencies. Managers may hold both long and short positions. CTAs generally have low correlation with other hedge strategies.

Equities
Shares that represent ownership in a listed company.

Event Driven
An Event-driven investment manager invests in situations such as mergers, take-overs or re-organisations. The strategy may involve the simultaneous purchase of shares in the company being acquired, and the sale of shares in its acquirer, with the intent to profit from the difference between the current market price and the ultimate purchase price of the company. The manager may also utilise derivatives to leverage returns or to hedge out risk. The outcomes are generally not dependent on the direction of the market.

Global Macro
The Global Macro investment manager typically invests worldwide, without any limitations either in its country allocations or in the types of assets or instruments traded (shares, bonds, commodities, derivatives, currencies, etc), hence the term “global”. Managers typically seek to profit from expected changes in major macro-economic variables, including currencies and interest rates.

GOVI
Government Bond Index.

Growth Shares
Typically shares that trade at higher price:earnings multiples than those of the market.

Headline Inflation (CPI Metropolitan areas only)
The overall measure of inflation, which is calculated as the year-on-year percentage change in the prices of a select basket of consumer goods and services.

Inflation-linked Bond
A bond issued by either government or corporations which links the interest payable and the principal amount payable at maturity of the bond to inflation.

LBGAI
Lehman Brothers Global Aggregate Index. The LBGAI is used as 60% of the benchmark for the Global Fixed Income Portfolio.

Listed Property
Property listed on the official securities exchange that trades as listed shares.

Long/Short Hedge Equity
This strategy holds simultaneous long (traditional buying of shares) and short (selling shares that are not owned) equity positions in an attempt to reduce overall market exposure. The investment manager will buy a company it favours and sell a similar company it believes will underperform. The strategy allows the managers to profit from both calls. The strategy's net gain will depend solely on superior stock picking. If the long picks outperform during rising markets and short picks underperform during market declines, the fund will make positive returns regardless of overall market direction. The strategy may hold a long or a short bias.

Market Capitalisation
FTSE/JSE Top 40 Companies Index
This index consists of the largest 40 companies by market value.
FTSE/JSE Mid Companies Index
This index consists of the next 60 companies ranked by market value, ie 41 to 100.
FTSE/JSE Small Companies Index
This index consists of the next 60 companies (after Mid Companies Index) ranked by market value, ie 101 to 160.
FTSE/JSE Fledgling Index
This index consists of the remaining small companies ranking below the first 160.

Market Neutral
Investment managers follow the same strategy as long/short managers, but generally invest equally in long and short positions in similar shares or market segments to neutralise market risk. Consequently, the “net exposure” or correlation to the market is minimal and hence the direction of the market does not determine performance. The strategy relies on superior stock picking (long and short) to drive returns.

Maximum Drawdown
This is the maximum loss, calculated from peak to trough, since inception of the portfolio.

MSCI World Index
Morgan Stanley Capital International World Index (a global equity index excluding emerging markets). The MSCI World Index is the benchmark for the Global Equity Portfolio.

Non-index
All shares that fall outside the FTSE/JSE indices.

OTHI
Non-government Bond Index.

Peer Group
The investment managers making up the SA Large Manager Watch.

Portfolio
The collection of shares, bonds, money market securities and other financial instruments or types of assets that make up the investor’s assets.

Regulation 28
The legislation controlling retirement-fund investments in South Africa. Intended to ensure a conservative investment spread for retirement funding products, to protect the investor from loss of value due to risky investment selection.

Repo Rate
The repo rate is the interest rate at which the SARB lends money to commercial banks. For example Standard Bank borrows money at the repo rate and on-lends it to the public at the prime rate. An increase or decrease in the repo rate places pressure on banks to increase or decrease the prime rate.

Risk
In the context of this document, risk typically describes the possibility that an investment may fluctuate over time, ie the degree of unpredictability in the return of the investment.

SA LMW
South African Large Manager Watch (performance survey of the largest South African investment managers published by Alexander Forbes).

SA LMW Average
The average return of the largest South African investment managers as surveyed. The SA LMW Average is used to calculate the benchmark for the Spectrum Local Portfolio.

SA LMW Median
If investment managers (as surveyed) are ranked in order of performance, the median manager return is the manager in the middle of the range. For example, if there are 11 managers in the survey, the median will be ranked number six, meaning five investment managers underperformed the median and five outperformed it. The SA LMW Median is used to calculate the benchmark for the Performer Local Portfolio.

SAPY
FTSE/JSE SA Listed Property Index. The SAPY is used as the benchmark for the Property Portfolio.

Sector Allocation
The allocation of a portfolio’s assets between the various FTSE/JSE-defined sectors, for example FTSE/JSE Banks, FTSE/JSE Resources etc.

Standard Deviation
This is a standard risk measure characterised by the volatility of portfolio returns.

SteFI Call
Short-term Fixed Interest Call Deposit Index. The SteFI Call is used as the benchmark for the Banker Portfolio.

Value
Typically shares that trade at lower price:earnings multiples than that of the market and/or may trade at a discount to Net Asset Value.

Volatility
This is a standard risk measure characterised by the standard deviation of portfolio returns.

Yield
Measure of income distribution typically in equities, the dividend yield, ie dividends per share (historic) as a percentage of price. In bonds, typically the coupon paid as a percentage of capital.

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