Glossary of Terms

1st Lien:  A type of legal debt that is secured by collateral, which means if an SME defaults on a loan, the lender can seize the collateral — anything of value such as a company's specific assets — to recoup their losses until the loan has been repaid.

2nd Lien: Second-lien debt refers to a form of borrowing that occurs after a first lien has been put into place. Second-lien debts are paid after the first or original first lienholder is paid off if the borrower defaults and suffers bankruptcy or asset liquidation. They're second in line to be fully repaid in the case of the borrower's insolvency.

6 Month Total Return: The 6 month total return is the change in price over a 6 month period of time that includes dividends and distributions paid.

Active Management: The trading of securities to take advantage of market opportunities as they occur, in contrast to passive management. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

Average LTV Ratio (Loan-to-Value): An LTV Ratio is the loan amount divided by the total value of the business and represents the cushion a lender has between its debt and the total value of the business.

Average Maturity: Average maturity is the average time it takes for bonds in a mutual fund to fully mature and repay investors. 

Barclay’s U.S. Aggregate Bond Index: A broad-based index of bond securities used to represent investment-grade bonds traded in the U.S. The index was formerly known as the “Lehman Aggregate Bond Index”. Used as a proxy for "Bonds" above.

Beta: A measure of the portfolio’s sensitivity to changes in the benchmark. A beta of 1 indicates the portfolio has historically moved with the benchmark. A portfolio beta greater than 1 indicates the portfolio has been more volatile than the benchmark and a portfolio beta less than one indicates the portfolio has been less volatile than the benchmark. Beta in this presentation is calculated using monthly historical returns.

CBOE Volatility Index ("VIX"): An index sponsored by the Chicago Board of Options Exchange (CBOE) that shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities of various option expirations and various strike prices of S&P 500 index options.

CBOE S&P 500 Buy-Write Index:  An unmanaged index designed to show the hypothetical performance of a strategy in which an investor buys a portfolio of the S&P 500 stocks, and also sells (or writes) covered call options on the S&P 500. 

Correlation (R²): A statistical measure of how two financial instruments (e.g. securities, indices, etc.) move in relation to each other. A correlation of +1 implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, the closer correlation is to 0, the less the movements of two securities are related to one another.

Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.

Dividend: Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.

Exchange Traded Fund (ETF): An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.

Fixed-Rate Loan: A type of loan with an interest rate that remains unchanged for the entire term of the loan.

Floating Interest Rate: A floating interest rate is an interest rate that changes periodically.

HFRX Absolute Return Index - A stock index designed to measure absolute returns. The absolute return index is actually a composite index made up of five other indexes. This index is used to compare the absolute returns posted by the hedge fund market as a whole against individual hedge funds. 

Liquidity: The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.

Market Risk: The possibility that the value of an investment will fall because of a general decline in the financial markets.

Max Drawdown: A measure of the largest single drop from peak to trough based on monthly portfolio returns.

MerQube Hedged Premium Income Index: An unmanaged Index designed to show the hypothetical performance of a strategy in which an investor buys a portfolio of the S&P 500 stocks, and also sells (or writes) calls spreads and buys put spreads on the S&P 500.

Morningstar LSTA US Leveraged Loan 100 Index: Designed to measure the performance of the 100 largest facilities in the US leveraged loan market. Index constituents are market-value weighted, subject to a single loan facility weight cap of 2%.

Mutual Fund: An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal (investment objective). Mutual funds can have actively managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to parallel the performance of a selected benchmark or index.

Passive Management: The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.

Portfolio: A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.

Portfolio Manager: The individual, team or firm who makes the investment decisions for an investment fund, including the selection of the individual investments.

Return: The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.

Risk: The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.

Risk Tolerance: An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.

S&P 500 Total Return Index (SPXTR) - An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of large cap stocks. All cash distributions (e.g. dividends and income) are reinvested. Used as a proxy for "Stocks" above.

Sharpe Ratio - A measure for calculating risk-adjusted return. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return, the performance associated with risk-taking activities can be isolated. Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return.  For Sharpe Ratio calculations in this presentation, the “risk free rate” is represented by the annualized monthly returns of the 3 Month US T-Bill.

Standard Deviation - Standard deviation is a statistical measurement that looks at how far individual points in a dataset are dispersed from the mean of that set. If data points are further from the mean, there is a higher deviation within the data set. It is calculated as the square root of the variance.

Up/Down Capture: The upside/downside capture ratio measures the ratio of the upside and downside of an investment vs a benchmark.

Volatility: The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.