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Relative Return
Relative return is a measure of the return of an investment portfolio relative to a theoretical passive reference portfolio or benchmark. In active portfolio management, the aim is to maximize the relative return (often subject to a risk constraint). In passive portfolio management, the aim is to obtain a relative return as close to zero as possible, thereby reproducing the return of the theoretical reference portfolio. When the relative return is positive, the portfolio is said to outperform the benchmark. Conversely, when the relative return is negative, the portfolio is said to underperform the benchmark. Within passive portfolio management, the absolute value of the relative return is often called the tracking error, which is confusing since the tracking error is more generally defined as the standard deviation of the relative return. Index funds are the financial products that use passively managed portfolios. Many investors use the relative return measure to measure to ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tracking Error
In finance, tracking error or active risk is a measure of the risk in an investment portfolio that is due to active management decisions made by the portfolio manager; it indicates how closely a portfolio follows the index to which it is benchmarked. The best measure is the standard deviation of the difference between the portfolio and index returns. Many portfolios are managed to a benchmark, typically an index. Some portfolios are expected to replicate, before trading and other costs, the returns of an index exactly (e.g., an index fund), while others are expected to ' actively manage' the portfolio by deviating slightly from the index in order to generate active returns. Tracking error is a measure of the deviation from the benchmark; the aforementioned index fund would have a tracking error close to zero, while an actively managed portfolio would normally have a higher tracking error. Thus the tracking error does not include any risk (return) that is merely a function of the m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Index Fund
An index fund (also index tracker) is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can a specified basket of underlying investments.Reasonable Investor(s), Boston University Law Review, available at: https://ssrn.com/abstract=2579510 While index providers often emphasize that they are for-profit organizations, index providers have the ability to act as "reluctant regulators" when determining which companies are suitable for an index. Those rules may include tracking prominent indexes like the S&P 500 or the Dow Jones Industrial Average or implementation rules, such as tax-management, tracking error minimization, large block trading or patient/flexible trading strategies that allow for greater tracking error but lower market impact costs. Index funds may also have rules that screen for social and sustainable criteria. An index fund's rules of construction clearly identify the type of companies suitable for the fund. The most ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Absolute Return
The absolute return or simply return is a measure of the gain or loss on an investment portfolio expressed as a percentage of invested capital. The adjective "absolute" is used to stress the distinction with the relative return measures often used by long-only stock funds that are not allowed to take part in short selling. The hedge fund business is defined by absolute returns. Unlike traditional asset managers, who try to track and outperform a benchmark (a reference index such as the Dow Jones and S&P 500), hedge fund managers employ different strategies in order to produce a positive return regardless of the direction and the fluctuations of capital markets. This is one reason why hedge funds are referred to as alternative investment vehicles (see hedge funds for more details). Absolute return managers tend to be characterised by their use of short selling, leverage and high turnover in their portfolios. Benchmark Although absolute return funds are sometimes considered no ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk-free Rate
The risk-free rate of return, usually shortened to the risk-free rate, is the rate of return of a hypothetical investment with scheduled payments over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free rate can be obtained with no risk, any other investment having some risk will have to have a higher rate of return in order to induce any investors to hold it. In practice, to infer the risk-free interest rate in a particular currency, market participants often choose the yield to maturity on a risk-free bond issued by a government of the same currency whose risks of default are so low as to be negligible. For example, the rate of return on T-bills is sometimes seen as the risk-free rate of return in US dollars. Theoretical measurement As stated by Malcolm Kemp in chapter five of his book ''Market Consistency: Model Calibration in Imperfect Markets'', the risk-free rate means different things to different people and there is no consensus ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Enhanced Indexing
In finance, enhanced indexing is any indexing strategy employed with the intention of outperforming strict indexing. Enhanced indexing attempts to generate modest excess returns compared to traditional index funds and other passive management techniques. Features Enhanced indexing combines elements of passive management and active management. Enhanced indexing resembles passive management because enhanced index managers cannot (in principle) deviate significantly from commercially available indices which are derived from statistical bureaus like Standard & Poor's or The Frank Russell Company. Enhanced indexing strategies usually have low turnover and lower fees than actively managed portfolios. However, enhanced indexing partially resembles active management because it allows managers the latitude to deviate from an underlying index. These deviations can be used to minimize transaction costs and turnover, or to maximize tax efficiency. Strategies Enhanced indexing comprises a wid ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Return (finance)
In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment, such as interest payments, coupons, cash dividends, stock dividends or the payoff from a derivative or structured product. It may be measured either in absolute terms (e.g., dollars) or as a percentage of the amount invested. The latter is also called the holding period return. A loss instead of a profit is described as a '' negative return'', assuming the amount invested is greater than zero. To compare returns over time periods of different lengths on an equal basis, it is useful to convert each return into a return over a period of time of a standard length. The result of the conversion is called the rate of return. Typically, the period of time is a year, in which case the rate of return is also called the annualized return, and the conversion process, described be ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
