Absolute Return. An investment objective of hedge fund managers is to seek positive returns in both up and down markets. This is in contrast with the relative return, which measures a fund manager's performance as compared to a market benchmark. Accredited Investor. An "Accredited Investor" is a person in Ontario, British Columbia and Alberta who can buy securities on an exempt basis in any amount. The definition of "accredited investor" which determines who can rely on this exemption in Ontario is contained in section 1.1 of OSC Rule 45-501 entitled "Exempt Distributions", and in British Columbia and Alberta is contained in section 1.1 of Multilateral Instrument 45-103 entitled "Capital Raising Exemptions". For SciVest Funds, the minimum initial investment amount is $25,000 for accredited investors. Alpha. A measure of a portfolio manager's risk-adjusted excess rate of return relative to a benchmark. Alpha indicates the advantage of the potrfolio over the index and represents the rate of return of the portfolio when the rate of return of the index is assumed to be zero. Beta. A measure of risk relative to the overall market. The market Beta is set at 1.0. The asset's Beta greater than 1.0 indicates the asset's volatility (risk) greater than that of the market, and Beta less than 1.0 indicates the asset's volatility (risk) lower than that of the market (see also "Systematic Risk" below). Correlation. A standardized statistical measure of the degree to which two variables move together over time. Adding an asset with low returns correlation relative to returns of other investments already in the portfolio yields risk-lowering diversification benefits. For example, the SciVest Market Neutral Equity Fund, with near zero correlation to the major market indices, is thereby delivering a "smoother ride" and a dramatically decreased risk when added to a portfolio. Exposure. The amount of risk a position faces in the market. Particular markets, such as equities, fixed income, or currency, and their sub-sectors all contain risks. Taking a position in one of these markets exposes an investor to specific risks which are characteristic to that particular market. Hedging. Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of a protecting position in a related security. For example, a wheat farmer would enter info futures contracts, to lock in a specific price for his wheat at a future date (typically, the time of harvest). This action removes all uncertainty about the price this farmer will receive for his wheat - but if the market price of wheat is higher at the future date, the farmer forgoes the possibility of receiving that higher price.
Leverage. The use of various financial instruments or borrowed capital to create exposures that are in excess of the amount of investable assets, to increase a potential return on the investment. Leverage, by definition, increases the risk. Liquidity. The degree to which an investment can be bought or sold in a timely and cost-efficient fashion, without affecting the investment's price. Liquidity is mainly characterized by a high level of trading activity for a particular security. Long Position. A positon whereby an investor owns a stock. This is in contrast with a short position (please see the definition below). Market. A market is the means through which buyers and sellers are brought together to aid in the transfer of goods and/or services. A market need not have a physical location, does not necessarily own goods/services involved, and, finally, can deal in any variety of goods/services (i.e., capital markets deal in stocks, bonds, etc.). Net Market Exposure. The percentage of a portfolio that is exposed to market fluctuations because long positions are not matched by an amount of equal value in short positions. This figure is obtained by subtracting dollar value of short positions from dollar value of long positions and dividing the result by total capital. For example, the SciVest Market Neutral Equity Fund has zero net market exposure by definition. Net Asset Value. The net asset value of a fund on a given valuation date is equal to the fair market value of the assets of the fund on such date less its liabilities on such date. Performance Fee. Performance fee refers to a certain percentage that a hedge fund charges per year over and above the management fee. Performance fee usually is 20% over a threshold performance (hurdle rate). For SciVest Funds, the performance fee payable to the Manager is 20% of the amount, if any, by which the increase in the Net Asset Value (adjusted to include distributions and cash flows) exceeds the notional increase in the Net Asset Value that would have been achieved had the Class A Unit’s performance equalled that of the Benchmark. The Benchmark used in the calculation of the Performance Fee in respect of the Scivest Market Neutral Equity Fund's Class A Units is based on the three-month Government of Canada Treasury Bill rate. Qualitative Analysis. Analysis that uses subjective judgment in evaluating securities based on non-financial information such as management expertise, cyclicality of industry, strength of research and development, labour relations etc.
Quantitative Fundamental Analysis. A security analysis that uses financial information derived from company annual reports and income statements to evaluate an investment decision.
Sector. A particular group of securities issued by companies that operate in the same industry, such as, for example, mining or electronics. A segment of the economy can also be classified as a sector. Sharpe Ratio. A relative measure of a portfolio's benefit-to-risk ratio, calculated as the portfolio's average return in excess of the risk-free rate divided by the portfolio's standard deviation, mathematically expressed as: Average Rate of Return for Portfolio - Risk Free Rate of Return
Standard Deviation of the Portfolio In a nutshell - the higher the Sharpe Ratio for a particular portfolio, the better. Why? In a numerator, we have the portfolio's return in excess of a risk-free return, such as that of a T-bill. In a denominator, we have the portfolio's standard deviation, or risk. Naturally, an investor would much prefer higher excess return in the numerator and lower risk in the denominator, and, therefore, higher resulting Sharpe Ratio. For example, the S&P 500 Index long-term Sharpe Ratiois is approximately 0.27 to 0.40; a good single strategy hedge fund manager produces a Sharpe Ratio of 0.50 or more; and a great world class single strategy hedge fund manager produces a Sharpe Ratio of 1.50 or more. Short Position. A position created by an investor selling the stock not actually owned (i.e. borrowed from a broker) with an intention to repurchase the same stock on an open market on a later date, at a lower price (see also "Short Selling" below). Short Selling. A strategy of attempting to capitalize on expected decrease in security's price. A security which is expected to decline in price is borrowed, sold on an open market, and bought back later (ideally, at a lower price) to be returned to the lender. If the declining price expectation was indeed correct, the short seller pockets the difference between proceeds of the short sale and the cost of purchasing back the security. Sophisticated Purchaser. A "Sophisticated Purchaser" is a person in Quebec who can buy securities on an exempt basis in any amount. The definition of "sophisticated purchaser" which determines who can rely on this exemption in Quebec is contained in sections 44 and 45 of the Securities Act (Quebec). Spread. The difference between the prices of two comparable or related securities. A spread is measured in basis points. One basis point equals 1/100 of 1 percent. Stock Selection Risk (or Unsystematic Risk, or Non-Market Variance). The portion of the asset's total variance (risk) attributable to the unique features of a particular stock. This type of risk is usually eliminated in a large, well diversified portfolio (i.e. the unsystematic risk is "diversifyable"). Systematic Risk (or Market Risk, or Beta). The portion of the asset's total variance (risk) attributable to the variability of the general market movements. Systematic risk is inherent in a fully diversified portfolio (or "market portfolio"), and cannot be "diversified away" by employing traditional investment strategies. Valuation Date. A specified date on which units of a fund are valued. For SciVest Funds, means a business day on which the Toronto Stock Exchange is open for business or such other days as the Manager may determine. For example, SciVest Market Neutral Equity Fund is valued at the close of each business day, thereas SciVest Multiple Strategies Fund is valued at the close of the last day of each week on which the Toronto Stock Exchange is open for business, as well as at month end. |
