# Glossary

**Alpha** is a measure of risk-adjusted return. The excess return of the fund relative to the return of the benchmark index is a fund’s alpha.

**American Depository Receipts** (ADRs) are issued by depository banks in the U.S. under agreement with an issuing foreign company. ADRs are US dollar denominated and are available for purchase on an American stock exchange. They are a way to invest in foreign companies over a familiar exchange.

**Attribution Analysis** is a tool used to evaluate the impact of a manager’s investment decisions on the performance of a fund or portfolio compared with that of an appropriate benchmark.

**Beta** is a statistic that measures the volatility of the fund, as compared to that of the overall market.

**Cash Flow** measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.

**Correlation** is a statistical measure of how two securities move in relation to each other as measured by the correlation coefficient, a statistic that ranges in value from -1 to +1, indicating a perfect negative correlation at -1, absence of correlation at zero, and perfect positive correlation at +1.

**Default** represents the failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt.

**Diversification** is a method that combines a broad of range of investments in an attempt to lower investment risk within a portfolio. Diversification works by combining assets that have low and/or negative correlations with each other – do not behave in the same manner – during market ups and downs.

**Earnings per share** (EPS) is calculated by taking the total earnings divided by the number of shares outstanding.

**Earnings Surprise** is when the earnings reported in a company’s quarterly or annual report are above or below analysts’ earnings estimates.

**Event-Driven Strategies** involve investments, long or short, in the securities of corporations undergoing significant change (e.g., spin-offs, mergers, liquidations, bankruptcies). Such change often provides managers with a tangible catalyst by which the manager attempts to realize the expected change in value in the underlying security. The potential for substantial profits exists when managers correctly analyze the impact of the anticipated corporate event, and take positions accordingly.

**Excess Returns** are returns in excess of a market measure such as an index.

**Expense Ratio** is a measure of what it costs an investment company to operate a mutual fund.

**Free Cash Flow** is a measure of financial performance calculated as operating cash flow minus capital expenditures.

**High Water Mark** is the highest *unitized value* the fund was priced at when a performance fee was paid. No performance fees will be incurred until the fund surpasses its high water mark.

**Hurdle Rate** refers to the minimum rate of return required in a calendar year before a performance fee can be collected. The Vertex Managed Value Portfolio has a hurdle rate of 5%.

An **Index** is a statistical measure of the changes in a portfolio of securities that represent a country, sector, or asset class. Some examples include: the Toronto Stock Exchange (TSX), S&P 500, DEX Universe Bond Index and Dow Jones Industrial Average.

**Issuer** is a company that sells securities to the market for the purpose of financing its operations. Common types of securities that are issued are common and preferred stocks, bonds, notes, debentures, bills and derivatives.

**Maximum Drawdown** is the percentage loss that a fund incurs from its peak net asset value to its lowest value. The maximum drawdown over a significant period is sometimes employed as a means of measuring the risk of a vehicle. This is usually expressed as a percentage decline in net asset value.

**Net Asset Value** (NAV) per share represents the total value of a Fund’s assets divided by the number of shares outstanding. It can also be referred to as the unit price and is the price at which transactions occur.

**Pair Trading** is a strategy of matching a long position with a short position in two stocks in the same sector in an effort to hedge against a specific sector.

**P&L** is the profit or loss associate with a security or portfolio of securities.

**Portfolio Turnover Rate** is the rate of trading activity in a fund’s portfolio of investments, equal to the lesser of purchases or sales, for a year, divided by average total assets during that year.

**The Price-to-Book** (P/B) Ratio compares a stock’s market value to the value of total assets less total liabilities.

**The Price-to-Earnings** (P/E) Ratio reflects the multiple of earnings at which a stock sells.

**R-Squared** indicates how much of a fund’s fluctuations were attributable to movements in the fund’s benchmark index.

**Risk Adjusted Return** is a measure to find how much return an investment will provide given the level of risk associated with it.

**Sharpe Ratio** is a statistical measure that uses standard deviation and excess return to determine reward per unit of risk. A higher Sharpe ratio implies a better historical risk-adjusted performance.

**Short Selling** involves the sale of securities not presently owned by the Fund.

**Sortino Ratio** a modification of the Sharpe ratio that differentiates harmful volatility from general volatility by taking into account the standard deviation of negative asset returns, called downside deviation. The Sortino ratio subtracts the risk-free rate of return from the portfolio’s return, and then divides that by the downside deviation. A larger Sortino ratio indicates there is a lower probability of a large loss.

**Standard Deviation** is a statistical measure of portfolio risk used to measure variability of total return around an average, over a specified period of time.

**Tactical Asset Allocation** is an active management portfolio strategy that rebalances the percentage of assets held in various categories in order to take advantage of market pricing anomalies or strong market sectors.

**Treynor Ratio** (portfolio return – risk free rate)/(beta of portfolio). A reward-to-volatility ratio. It measures the returns earned in excess of those that could have been earned on a riskless investment per unit of market risk assumed.

**Unitized Value** is the *Net Asset Value* of a fund including re-invested distributions.

**Up Capture** and **Down Capture** is a measure of how well a manager was able to replicate or improve on phases of positive benchmark returns, and how badly the manager was affected by phases of negative benchmark returns.