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Investing Glossary
- Active Fund
- An investment fund designed to provide a return that exceeds that of its performance benchmark. A fund is said to be active if the investment manager applies analysis and judgment in selecting specific securities to buy or sell for the fund.
- Alternative Investments
- Investments other than those generally available to investors through a public market. Examples include private equity, timber, hedge funds, managed futures, and other types of investments offered only to sophisticated institutional and private investors.
- Annual Return
- The total return of a security over a specified period, expressed as an annual rate of interest.
- Annualized
- A percentage calculated by a formula to find the "average" performance per year for a period greater than one year. It is the average return that takes into account compounding.
- Asset Allocation
- A process of investing fund assets in various types of financial instruments such as domestic stocks, international stocks, bonds, cash equivalents, real estate partnerships, etc. Click here to view recent MAF asset allocation by underlying fund and DSF asset allocation by investment style.
- Asset-Backed Securities
- A type of bond backed by loans made primarily by banks and other financial institutions to consumers. Examples include credit card loans, car loans, and other similar types of loans.
- Asset/Liability Committee
- Seven members comprise the Asset/Liability Committee of the board of directors. Four of the members are directors and the other three are "at-large" members. All seven committee persons are members of The United Methodist Church and most have considerable actuarial, investment, or finance-related experience. The Asset/LiabilityCommittee is responsible for virtually all decisions affecting the General Board's investment funds.
- Balanced Fund
- A fund that holds a variety of different assets such as stocks, bonds, cash equivalents, real estate, etc. This type of fund seeks to produce investment returns from both current income and capital appreciation and attempts to avoid excessive risk.
- Bonds
- An investment that represents a loan to a corporation, government or government agency or some other entity. The borrower agrees to pay the bond holder a specified rate of interest for a set period and agrees to repay the bond holder fully by the end of the agreed period. Also known as "fixed-income instruments" or "debt securities".
- Cash Equivalents
- Bond-like investments that are generally very safe and can be converted to cash quickly. Examples include U.S. Treasury bills, certificates of deposit, and very short-term debt issued by corporations, called commercial paper.
- Consumer Price Index
- A measure of inflation issued by the U.S. Department of Commerce. Also known as CPI, this indicator measures the increase in the cost of products and services such as energy, food, housing, and transportation.
- Custodian Bank
- A financial institution responsible for the safekeeping and administration of the General Board's investment assets. Mellon Bank of Pittsburgh, Pennsylvania, is the General Board's custodian bank.
- Developed Countries
- Countries with advanced economies and financial markets similar to the United States. The largest international developed countries in terms of available stock market investments are France, Germany, Japan, Switzerland and the United Kingdom.
- Diversification
- An investment technique designed to reduce exposure to wide fluctuations in value by holding a variety of investments. A balanced fund will hold different types of investment classes such as stocks, bonds, cash equivalents and real estate. A fund that invests in a specific asset class such as a stock fund will hold a variety of stock of different types of companies.
- Emerging Countries
- Countries with less developed economies and financial markets relative to large developed countries such as the United States, Japan and the Western European countries. Stocks and bonds of companies located in emerging countries tend to be riskier than those of developed countries.
- Expense Ratio
- A portion of the fund's assets used to pay the expenses associated with the fund. The three primary types of expenses incurred by the General Board are fees paid to the fund's investment manager, fees paid to the custodian bank responsible for the safekeeping of the fund's assets and costs incurred by the General Board to administer the funds.
- Fiduciary
- An individual and/or an organization with legal authority and responsibility for making decisions regarding financial matters on behalf of a beneficiary.
- High Quality Bonds
- Bonds of a company, governmental unit, or agency judged to have very safe credit characteristics. While there is some risk of default with high quality bonds, professional rating agencies have judged the risk to be minimal.
- High Yield Bonds
- A bond of a company whose credit is judged lower than companies with an investment grade rating. Because of higher risk, these bonds pay higher interest rates than bonds with an investment grade rating.
- Inflation-linked Bonds
- Bonds with an interest rate linked to the issuing country's level of inflation. Typically, the issuer agrees to pay a specified interest rate and agrees to adjust the par value of the bond based on inflation.
- Investment-Grade Securities
- A bond that is relatively safe (as opposed to "high yield" or "junk" bonds). Several companies perform an intense analysis of a company's bonds and will issue a rating or grade that indicates whether or not the company's bonds are relatively safe.
- Investment Managers
- Professional organizations delegated fiduciary responsibility for managing a portion of the General Board's investment assets. Investment management firms make decisions regarding which securities to purchase or sell within the guidelines established by the General Board's Investment Policy.
- Investment Strategy Statement
- Formal guidelines that include investment objectives, diversification requirements, investment restrictions and other relevant rules that govern the administration of the General Board's investment program. Any change to the General Board's Investment Policy must be approved by the board of directors. Click here to see the General Board's Investment Strategy Statement.
- Market Risk
- The chance that an investor takes that an entire class of investments (such as stocks or bonds) will rise or fall. If the entire stock market falls, chances are that any individual stock fund also will fall.
- Microfinance
- A type of lending involving small, non-collateralized loans to low-income, typically self-employed, workers who do not have access to traditional financial lending services.
- Money Market Fund
- A type of bond fund that typically holds relatively safe investments that can be quickly converted to cash. Most money market funds hold bonds or bond-like investments that become due (mature) in 30 days or less.
- Mortgage-Backed Securities
- A type of bond that represents a large pool of individual mortgage loans. Investors receive monthly interest and principal concurrent with the payment of the loan by the borrower. Most mortgage loans are backed by an agency of the U.S. government.
- Par Value
- The stated value of a security at the time it is issued. For example, a a corporate bond normally has a par value of $1,000 meaning that an investor paid $1,000 at the time the bond was issued. The price of a bond will fluctuate above or below its par value based on the prevailing level of the current market interest rate for the bond compared to the interest rate at which the bond was issued.
- Passive Fund
- An investment fund designed to provide a return that very closely matches that of its performance benchmark. A fund is said to be passive if the investment manager simply purchases those securities that are members of the index against which the fund compares its performance. Some passive funds may not hold all members of the index but will try to mirror the performance of the index by using statistical techniques. Sometimes also referred to as an "index fund".
- Performance Benchmark
- A standard or goal assigned to an investment manager for the purpose of judging the manager's investment performance. It is the performance that an investor could achieve by purchasing all of the securities that comprise the performance benchmark. For example, the S&P 500 is probably the most widely recognized performance benchmark.
- Portfolio Screening
- Restricting investments to companies that meet pre-determined investing guidelines. Screens are typically negative: no investments in companies producing alcoholic beverages, cigarettes, pornography or firearms, for example. Screens also may be positive: for example, investing in companies producing alternative sources of energy, processing organically grown foods or developing affordable housing units.
- Proxy Voting
- The mechanism most shareholders use to vote at a company annual or specially called meeting. Companies mail proxy materials to shareholders in advance of the regularly scheduled annual meeting. The proxy materials include a ballot which the shareholder votes and returns to the company secretary. The ballot typically includes an election for members of the board of directors, any proposals involving how companies are governed and initiatives proposed by individual shareholders.
- REIT (Real Estate Investment Trust)
- A trust that uses the capital from many investors to purchase and manage real estate investments and/or mortgage loans. REITs are just like stocks in that one may purchase shares of REITs on a major stock exchange.
- Risk
- The likelihood that an investment will produce performance below an investor's expectations. Generally, the greater an investment's risk, the greater the investment's return potential. Also, the greater the chance that an investor might be disappointed with the short-term and/or long-term performance of the investment.
- Shareholder Resolution
- A proposal that has been submitted by a shareholder, according to Securities and Exchange Commission guidelines, for consideration by all shareholders at a company’s annual meeting. Proposals generally call upon the company or the board of directors to take a particular action such as altering a form of corporation governance or responding to a specific social or environmental issue.
- Social Principles
- A section of The Book of Discipline of The United Methodist Church detailing the Church’s position on a variety of social, political and economic issues. The Book of Discipline directs that all investing by United Methodist entities should uphold the goals outlined in the Social Principles.
- Socially Responsible Investing (SRI)
- An investment strategy dedicated to achieving strong financial returns while influencing corporations to higher social, environmental and corporate governance standards. Traditional socially responsible investing incorporates portfolio screening, proxy voting, various forms of corporate engagement and social impact investing.
- Stocks
- An investment that represents an ownership interest in the issuing company. Stockholders are entitled to vote for the company's board of directors and share in the profits of the company.
- U.S. Agency Securities
- Securities, usually bonds, that are issued by agencies of the United States government such as the Government National Mortgage Association (Ginnie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae) and the Student Loan Marketing Association (Sallie Mae). The bonds issued by these agencies fund the purchase of single or multi-family homes and post-high school education.
- Unitized Fund
- A fund that fluctuates directly with the value of the securities held in the fund. Account balances of investors in a unitized fund immediately will reflect the gains and losses of the securities held in the fund.
- Volatility
- A term used to describe favorable and unfavorable changes in the market value of an investment.
For additional information regarding investment terminology, please refer to the following links:
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