Malachite Aggressive
Preferred Fund

Analytical Software

Segregated Account

Preferred Share

Daily Commentary


Monthly Recommendations


On-Line Videos


 Press & Writing
 Terms of Use
 Privacy & Security

Glossary of Terms

The Association for Investment Management and Research, a world-wide, though North American dominated, organization of financial analysts.
The amount left to the investor after payment of taxes: if a dividend payment is $1.00 and the investor's marginal tax rate for dividends is 32.9%, the after-tax value of the dividend is $0.671.
CFA Charter
CFA Charters are issued by AIMR. CFA stands for "Chartered Financial Analyst". The charter is awarded after the successful completion of three annual examinations (which are prepared for through home study) and relevent experience in the financial industry. The CFA Charter is usually regarded as being roughly equivalent to an MBA with a specialization in finance.
cash and equivalents
Cash held in a demand account at a financial institution, or currency, or a financial instrument issued by a financially strong institution with a very short term and great liquidity in the market-place, so that it may readily be turned into an amount of cash known with great precision. An example would be Government of Canada Treasury bills with a term-to-maturity of three months or less.
cost yield
The complete set of options available to the issuer and the investor is considered and a value assigned to each option. These option values are incorporated into an over-all yield evaluation. Very similar to curve yield but with a different method of calculation of the value of each option.
credit rating
A measure of the issuer's ability to meet the terms of the investment by paying interest or dividends in the agreed manner, as well a repaying the principal of the investment at maturity. These ratings are issued by credit rating agencies (for a fee paid by the issuer) and are explicitly not investment recommendations in the buy/sell/hold sense. Most institutional fixed-income investors will not hold issues without a credit rating.
current yield
This is the yield reported in newspaper listings. It is simply the annual dividends payable divided by the current price of the security.
curve yield
Very similar to cost yield but with a different method of calculation of the value of each option.
The amount by which the price under consideration (market price, redemption price, etc.) is under the issue price. An instrument issued at $25 and trading at $24 has a discount of $1. The opposite of "discount" is premium.
Fellow of the Canadian Securities Institute.
The completion of an order. An investor who put in an order to buy 200 shares and actually bought 200 shares has been filled; if he actually bought only 100 shares, he has been partially filled; if no shares were purchased he has not been filled.
Friction is used to denote the costs of a performing a trade. These costs include dealers commissions, settlement fees and capital gains taxes. Of these, the first two will always work against a decision to trade, as they always work against the investor. Capital gains taxes may work in the investor's favour if the instrument to be sold is trading at a loss and the investor currently has a taxable capital gain - in this case, the fact that performing the trade will reduce the amount of tax already payable will work in favour of a decision to trade.

For example, consider the case of an investor who owns 1000 shares of TRP.PR.X, bought at $45 and currently trading at $44. These shares are virtually identical to TRP.PR.Y. The investor has (through other investments) a taxable capital gain of $1000, on which tax will be paid at a rate of 32.9%, or $329. If the investor sells TRP.PR.X to buy TRP.PR.Y at the same price, then his portfolio will, in terms of expected future returns, be almost unchanged by the trade, but the fact that a $1000 capital loss was realized will eliminate his current capital gain and reduce his tax by $329.

There is no free lunch: when the TRP.PR.Y are sold later on, the capital gain will be greater by the same $1000 and taxes will be correspondingly greater. Transaction costs also must be considered. However, the fact that these taxes will be payable further into the future than would otherwise be the case (in many ways equivalent to an interest-free loan from the tax-man) increases the attractiveness of the trade.

This particular example is an example of tax-loss selling.

hard retraction
The ability of the investor to demand cash from the issuing company in exchange for his shares. The amount of cash, notice period and time at which this right may be excercised being specified in the prospectus at time of issue.
To sell shares at the indicated bid price.
A market is inefficient if information regarding the value of a particular investment is not communicated rapidly to its market price. If, for example, a listed company existed which had as its sole business the holding of particular common shares, we would expect changes in the prices of those shares to be instantaneously reflected in the price of the holding company's shares. The market is "inefficient" to the extent that this effect is delayed, or not reflected at all.

Another example would be two series of bonds issued by the same company, which had identical terms, issue sizes and distribution of holders. The market would be inefficient to the extent that the prices of these bonds on the market was not identical.

issue price
The price at which the instrument was issued, that is, sold to investors directly by the company. This is the primary market for the shares; subsequent trading between investors is referred to as the secondary market. The issue price is normally equal to the par value of the shares; the few exceptions to this rule are usually deferred preferred shares.
To buy shares at the indicated offering price. cf. hit.
limit order
An order to execute a trade only at a certain price or better. This may result in obtaining only a partial fill or perhaps not executing the trade at all.

cf. market order.

The ability to trade in an investment without affecting the market price. It may be possible, for instance, to buy 100 shares of Royal Bank at $50 instantly, but a large investor seeking to buy 100,000 shares immediately might have to pay $51 in order to have his order filled. If the larger investor had put in a limit order for 100,000 shares at $50, he might end the day with a fill of fewer shares, if any, than he wanted to buy.
market order
An order to execute a trade at whatever price is available in the market. This can often have fearsome consequences. If 100 shares of Royal Bank are offered at $50 and the only other offer on the exchanges books is for 100 shares at $60, it is entirely possible that a market order to buy 200 shares will lift both offers, resulting in an average cost of $55 per share. The investor has been filled, but perhaps at a cost much greater than he intended or expected.

cf. limit order.

The date on which the issuer is compelled to return the invested funds to the investor.
marginal tax rate
The tax rate payable on income beyond a certain base: if an investor has a base income of $100,000 p.a., on which taxes of $35,000 are payable, but additional income is taxed at 50%, then the marginal tax rate is 50%.
notice period
The period which elapses between one party (either the investor or the issuer) irrevocably declaring that a particular right will be exercised and the effects of that exercise occuring. For example, issuers are usually required to provide thirty days notice of redemptions.
par Value
The face value of the shares. This is usually equal to the issue price, and reflected as a liability on the books of the issuer.
portfolio yield
In this approach, each scenario of events is considered and a probability assigned to the occurrence of each. The yield calculation considers the results of each scenario weighted by its probability.
preferred share
Preferred shares are issued by corporations to raise funds for their activities. Very similar to bonds, the terms of investment are set in advance; dividends are usually paid quarterly. With a few exceptions, dividend payments are either fixed or floating rate (some, known as fixed-floaters, will pay a fixed rate for an initial term, after which the rate floats). A floating-rate preferred will usually pay dividends at some fixed percentage of the banking prime rate, although some will have the percentage itself adjusted in a pre-determined manner in an effort to maintain the market price at or near the issue price.

Preferred shares benefit from a favourable tax treatment on dividends from Canadian companies; for an investor in Ontario's top marginal tax bracket, dividends are taxed at an effective rate of 32.9%, as opposed to a rate of 48.8% on interest income and dividends on preferred securities (rates as of September, 2001).

Preferred shares can be subject to a bewildering array of features: redemptions, retractions and exchanges are the most common modifiers.

The amount by which the price under consideration (market price, redemption price, etc.) exceeds the issue price. An instrument issued at $25 and redeemable at $26 has a redemption premium of $1. The opposite of "premium" is discount.
primary market
This refers to the initial sale of investments by the company, with proceeds (less dealer fees and expenses) received by the issuing company, in contrast to the secondary market.
quantitative investing
Quantitative investing examines potential investments through the application of generalized rules to arrive at an unequivocal indication of whether or not a particular trade is attractive. This is usually done nowadays through use of computers to examine how well these rules have worked in the past.

The rule of thumb which states bank stocks should be bought when their dividend yield exceeds 60% of the yield of a 10-year bond is an example (albeit a simple one) of quantitative investing.

One might expect this phrase to be contrasted with qualitative investing, but this term is not used. The phrase "Quantitative investing" is usually used to indicate a high degree of reliance on complex rules with the assistance of computers.

An issue is redeemed when the issuer returns the invested cash to the investor, sometimes with a premium. If the date of this action was known and fixed at the time of issue, this date may be known as the maturity date. If there are varying dates (and usually varying premia) on which the issuer may, at its option, redeem the issue, the issue is referred to as redeemable. If there is a date on which the investor may demand redemption, at the investor's option, the issue is referred to a retractible.
An issue is redeemable (referred to as callable in the bond markets) if the issuer has the right to return the issue price of the instrument on certain dates, sometimes with a premium payable as well. These dates and premia are specified at the time of issue of the instrument. There may be multiple dates or periods allowed for potential redemption, usually with premia that decline to $0 (that is, ONLY the initial investment is returned).
An issue is retractible if the investor has the right on a given date (or in a given period) to demand the redemption for his shares. If this redemption will be for cash, the retraction is hard; if for common shares of the issuing company, the retraction is soft. Soft retractions are usually equivalent to investing the issue price of the shares in the common at a 5% discount to the common's market value.
secondary market
This refers to dealings between investors, with the issuing company not being involved, on contrast to the primary market.
This refers to the preference for certain investors for certain attributes of their investments. For example, a pension fund may prefer (or allocate a fixed percentage of its portfolio to) long term bonds, while other entities may prefer other investments according to their business needs. Segmentation is usually used to refer to maturity preferences, but can refer to others, such as credit ratings or industry groups.
soft retraction
A retraction in which the issuer issues common shares in exchange for the redeemed instrument, instead of exchanging it for cash (hard retraction).
tax-loss selling
The sale of instrument motivated largely by a desire to realize a capital loss for tax purposes. This can be a valuable tool to defer taxes, provided equivalent investments are available. See friction for an example.
The time until the instrument becomes due. An instrument due to be redeemed on October 1, 20xx, has a term-to-maturity of one month on September 1, 20xx
A measure of the expected income from an investment relative to its cost. Hymas Investment Management Inc. uses no less than five different calculation methodologies in the course of preferred share valuation analysis:
This is the most conservative method for evaluating yield. It considers all the options available to the company (as modified by options available to the investor, which may be pre-emptive) and performs a yield calculation based on the scenario which is worst for the investor.