Glossary

Active Share quantifies how much a portfolio differs from its benchmark index, and it is based on the portfolio’s holdings and their corresponding weights compared to the weights of the same holdings in the benchmark index. Annual Turnover is calculated by dividing the average of the absolute value of assets purchased and sold during the year by the average assets in the portfolio over the same year.

Alpha measures the performance of a portfolio versus its benchmark on a riskadjusted basis.  It is calculated by subtracting the portfolio’s expected return based on the Capital Asset Pricing Model formula Rf + β (Rm-Rf ) from the actual return of the portfolio, where Rf is the return on risk-free Treasury bills, Rm is the benchmark return and β is the beta of the portfolio as defined below.

Beta measures the sensitivity of a portfolio to the movement of its benchmark.  It is calculated as the slope of a regression of historical portfolio returns against the returns of the benchmark.

Dividend growth refers to the compound annual growth rate in dividends per share that a company pays to its shareholders.

Down-capture ratio is calculated by dividing a portfolio’s compounded returns during periods when its benchmark was falling by the benchmark’s compounded returns during those same periods.  A down-capture ratio of less than 100 indicates that the portfolio outperformed its benchmark during periods when the benchmark had negative returns.

Forward P/E ratio is calculated by dividing a company’s current share price by its estimated future earnings per share.

Free cash flow yield is calculated by dividing a company’s annual free cash flow per share by its market price per share.

Median Market Cap is the midpoint of market capitalization (market price multiplied by the number of shares outstanding) of the stocks in a portfolio. Half the stocks in the portfolio will have higher market capitalizations; half will have lower.

Sharpe ratio is calculated by dividing a portfolio’s excess return by its standard deviation, using the formula (Rp - Rf ) / σp where Rp is the portfolio’s return, Rf is the return on risk-free Treasury bills, and σp is the standard deviation of the portfolio’s return.  The higher the Sharpe ratio, the better a portfolio’s historical risk-adjusted performance. Standard deviation measures the risk or volatility of an investment’s return over a particular time period: the greater the number, the greater the risk. The volatility, or uncertainty, of future returns is a key concept of investment risk.

Standard deviation is a measure of volatility and represents the variability of individual returns around the mean, or average annual, return. A higher standard deviation indicates more return volatility. This measure serves as a collective, quantitative estimate of risks present in an asset class or investment. Some risks may be underrepresented by this measure. Standard deviation is an underlying calculation for many other performance-based statistics including alpha, beta, and Sharpe ratio.

Total Debt/EBITDA is calculated by dividing a company’s total debt (short-term plus long-term) by its earnings before interest, taxes, depreciation and amortization (EBITDA).

TTM (Trailing Twelve Month) Dividend Yield is calculated by dividing the total dividends paid out over the previous 12 months by the current market price of the stock.  Median market cap is the midpoint of market capitalization (market price multiplied by the number of shares outstanding)) of the stocks in a portfolio.  Half the stocks in the portfolio will have higher market capitalizations; half will have lower.

Up-capture ratio is calculated by dividing a portfolio’s compounded returns during periods when its benchmark was rising by the benchmark’s compounded returns during those same periods.  An up-capture ratio of more than 100 indicates that the portfolio outperformed its benchmark during periods when the benchmark had positive returns.