Private Investment Counsel

A

Asset Allocation - the strategy behind an investor's decision to construct an investment portfolio in a certain way. Stocks, bonds, and cash (short-term investments) are the three principal asset classes or investment types used in asset allocation.

Average Term to Maturity - each bond in a bond/fund portfolio has a specific amount of time between now and when it matures. The average term to maturity is the arithmetic average length of time until the average bond in a fund/portfolio will mature or be redeemed by its issuer.

B

Bankers' Acceptance - a money market instrument issued by a non-financial corporation but guaranteed as to principal and interest by its bank. The guarantee results in a higher issue price and consequent lower cost to the issuer.

Basis Point - 1/100 of one percent. A 0.5% change in interest rates is referred to as a change of 50 basis points.

Bear Market - a period of sustained declining market prices.

Benchmark Portfolio - the personalized asset allocation that has been selected as the primary strategy to meet each client's objectives. This portfolio is developed jointly by the client and a team of advisors. Portfolio action will deviate from this "neutral" position when the investment management team deems it appropriate.

Bull Market - a period of sustained rising market prices.

C

Central Bank - in Canada, the Bank of Canada; in the U.S., the Federal Reserve Board. The central bank is responsible for setting short-term interest rates (the Bank rate in Canada; the discount rate in the U.S.). These rates are an important tool in implementing monetary policy, by which the central banks seek to ensure that the economy grows in a sustainable fashion and inflationary pressures are contained.

Credit Rating - the ability of an issuer to repay its level of debt on a relative basis, as assessed by an independent rating agency. The Government of Canada has the highest-ranked credit quality in Canada.

Currencies - international investing means buying: (a) a foreign security and, as a result; (b) the currency in which that security is denominated. Portfolio managers either filter out (hedge), actively manage, or seek foreign currency exposure depending on the expected trend in value for the investor's home currency relative to the foreign currency.

D

Defensive Sectors - areas of the equity market, such as utilities and health care stocks, that are favoured by investors as a safe haven during times of uncertainty or extreme volatility. These stocks are defensive by nature as they typically offer predictable earnings growth and reliable dividend payments in both good and bad economies.

Derivatives - index futures and options that reflect the price movement of an underlying security (e.g., a stock market index), but are traded separately from the cash market.

Discretionary Portfolio - once an investment strategy is agreed upon by a client and a portfolio manager, the portfolio manager is given the discretion to oversee the account's administration and adjust portfolio holdings when opportunities and market conditions warrant.

E

Emerging Markets - developing countries with relatively low per capita income, often with above-average economic growth potential.

Equity or Shareholders' Equity - ownership interest of common and preferred stockholders in a company. Also, the difference between the assets and liabilities of a company, sometimes called net worth.

F

Fees - nearly all investments carry with them a management fee or commission. For instance, the average Management Expense Ratio (MER) for a balanced mutual fund is 2.32%¹ of the total value of the investment. The average weighted fee at TD Private Investment Counsel is just 0.98%².

Fiscal Policy - a key responsibility of the federal and provincial governments, which involves preparing the budget and financial strategy for the country or province. Among the tools of fiscal policy are taxation and government payments.

Fixed Income Securities - securities that generate a defined set of payments, such as interest or dividend income, including bonds, debentures and preferred shares.

Fundamentals - refer to relevant factors or data that influence the value of a particular security, such as a company's stock or a country's currency. In the case of a stock, for example, the company's sales, earnings, debt and dividend prospects are fundamentals that would affect share price. Similarly, a country's economic growth rate, interest rate policy and trade patterns are factors that potentially influence the strength or weakness of its currency.

G

Gross Domestic Product (GDP) Growth - GDP is the value of total production of goods and services in a country over a specified period, typically a year. How much GDP grows from one period to the next is an indication of a country's economic health.

Growth Stock - stocks whose revenues and/or earnings are growing faster than the average company at the current time.

H

Hard Landing - falls somewhere between a soft landing and a recession. That is, an economic slowdown to 1% to 2% growth, which is good for containing inflation but teeters on the edge of recession.

Hedge Fund - a broad category of portfolio, or fund, that seeks to reduce risk by transferring some of that risk to another investor. These types of assets will generally have a low correlation with equity or bond markets.

I

Index - e.g., the S&P/TSX Composite Index or the S&P 500 Index (U.S.). A leading benchmark of equity or bond performance which is used to answer the question, "What did the market do today?" An index is typically composed of several industry sectors.

Index Futures - a stock index future is an agreement to take, or make, delivery of an amount of cash determined by the difference between the level of the specified stock index at the time you enter into the contract and the level of the index at the time you exit the contract. This investment approach allows the investor to take advantage of changes in the index, without actually buying the individual securities which make up the index.

L

Liquidity - the ability to turn your investment into cash immediately. Alternatively, the flow of cash into and out of markets, whether domestic or international, which can affect interest rates and corporate profits.

M

Market Capitalization - the aggregate market value of a security, calculated by multiplying the current price per share by the total number of shares issued.

Market Sectors - interest-sensitives, e.g. utilities, real estate, financial services and pipelines, are especially affected by changes in interest rates. Cyclicals, e.g. steel, industrial companies, autos, etc., are sensitive to the business cycle. Resources, e.g. mines, gold, oil and gas and forestry products, are sensitive to commodity prices.

Monetary Policy - a policy often implemented by a central bank to control credit and the money supply in the economy, in an attempt to control inflation and stimulate or slow an economy. One tool of monetary policy is the setting of short-term interest rates.

P

Portfolio Manager - each Private Investment Counsel portfolio is overseen by a dedicated Portfolio Manager, an accredited investment professional. The Portfolio Manager begins with a series of discussions with the client, leading to a highly personalized investment strategy.

Proprietary Pooled Portfolio - a portfolio comprised of managed investment funds (pooled funds) which have very low or no management fees embedded in the funds. Pooled funds are typically held by individuals or institutions investing larger sums.

R

Recession - technically defined as at least two consecutive quarters when the economy shrinks or fails to grow.

S

Segregated Portfolio - an investment portfolio of individual stocks and bonds.

Small-, Mid-, Large-Capitalization - reflects the size and dollar value of the companies whose securities are listed on the exchanges. Capitalization is often shortened to "cap" in this context. Small-cap stocks are usually less liquid (harder to buy and sell) than large-caps. Bank stocks are large-cap. Many high-tech stocks are small-cap.

Soft Landing - a moderate slowing of economic growth to a rate of about 2% to 3%, which is expected to keep inflation from accelerating.

Spread - commonly used to describe the difference in yield between short- and long-term bonds or between Canadian and U.S. bonds of similar term to maturity. Could also be the difference between the bid and asking prices of a stock or bond.

Supranational Organizations - a world or regional organization that is not tied to any one sovereign country, such as the World Bank, which issues bonds to finance its activities.

T

Total Rate of Return - the percentage change in the total value of an investment portfolio including interest income, dividends paid on equities, and the change in market value of the portfolio over a specified time period. The calculation will include both realized and unrealized capital changes, and it may be calculated and expressed as a return that is net of expenses and/or taxes. Often expressed as the annual compound rate.

U

Underweight and Overweight - refers to deviations in the neutral asset allocation of a benchmark portfolio, underweight being less than the neutral, overweight more. For example, the benchmark neutral asset allocation for a balanced portfolio might typically be 60% in equities, 30% in bonds, and 10% in cash. If the asset mix is shifted to reflect a 50% position in equities, 40% exposure to bonds and a 10% holding in cash, the portfolio would be underweight equities, overweight bonds and neutral cash.

Unit Trusts - a mutual fund structure which allows funds to hold assets and pass investment returns through to the individual owners of the trust units.

Y

Yield - an ambiguous term having several possible meanings:

1. Current yield: annualized interest income on a bond expressed as a percentage of its current market value.
2. Dividend yield: same as current yield, but applied to dividend income on a stock's price.
3. Yield-to-maturity: the annualized total return, expressed as a percentage, that a bond will provide to the investor if held to its final maturity date.

Yield Curve - the relationship among the yields to maturity of bonds (usually government bonds) of the same quality but different maturities, ranging from 30 days to 30 years, put into graphic form.