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Investment Newsletter Glossary

Definition of terms used in investment newsletter

Alpha (or CAPM Alpha): Difference between the expected return of a stock, mutual fund, or ETF and its "fair return" based on its historical responsiveness to market movements. More on CAPM

AlphaProfit Core™ Portfolio: A long-term capital appreciation oriented model portfolio typically constructed using 7 to 8 sectors and industry groups. Turnover of holdings in the Core Portfolio is lower than in the Focus Portfolio. The model portfolio is suitable for regular and retirement accounts.

AlphaProfit Favored Buy Ratings: AlphaProfit's proprietary ratings for subscribers seeking strong short-term returns. Favored Buy rating is assigned when a particular preferred mutual fund's or ETF's risk-reward ratio is deemed superior to those of other preferred investments.

AlphaProfit Focus™ Portfolio: An aggressive-growth oriented model portfolio typically constructed using 2 to 4 sectors and industry groups. Turnover of holdings in the Focus Portfolio is higher than in the Core Portfolio. The model portfolio is suitable for regular and retirement accounts.

AlphaProfit Sector Portfolio Indicator™: Proprietary short-term indicator for subscribers who track the AlphaProfit model portfolios with their investment accounts. The indicator considers economic and equity market metrics along with upcoming portfolio re-positioning exchanges to assess the attractiveness and risks of getting started or investing additional capital. Three types of readings are assigned: (a) Buy: Current prices are good to trade at. (b) Buy on Dips: Weakness may likely develop and may be used as buying opportunity. (c) Wait: Defer investing cash.

Basis Point: 1/100th of a percent.

Beta (or CAPM Beta): Measure of the responsiveness of a security such as mutual fund, exchange-traded fund, or stock to market movements.

Capital Asset Pricing Model (or CAPM): Set of predictions concerning equilibrium expected returns on risky assets. For a complete description of the Capital Asset Pricing Model as well as terms, alpha and beta, refer "Investments", Z. Bodie, A. Kane, A. J. Marcus, 2nd Edition, 1993.

Category: Categories, equity mutual funds and ETFs are divided into, based on market capitalization and investment style of stocks held in their portfolios. These include large cap blend, large cap growth, large cap value, mid-cap blend, mid-cap growth, mid-cap value, small cap blend, small cap growth, or small cap value.

Compound Annual Return (or Average Annual Return): A calculated number that describes the rate at which an investment has grown, assuming a constant rate.
See: Fidelity Model Portfolio Returns,   ETF Model Portfolio Returns

Cumulative or Holding Period Return: Total return earned by the fund or portfolio over the referenced holding period. All distributions are reinvested in the fund paying the distribution.

Distributions: Interest income, dividend income, or capital gains distributed by a mutual fund or ETF, typically at a specified frequency.

Dollar Cost Averaging (DCA): Strategy of buying a fixed dollar amount of a particular investment, such as a mutual fund on a regular schedule. DCA lowers the risk of investing a large amount in a single investment at the wrong time.

Dow Jones Wilshire 5000®: This index measures the performance of all U.S. headquartered equity securities with readily available price data. Over 6,500 capitalization weighted security returns are used to adjust the index. This index is an excellent approximation of dollar changes in the U.S. equity market.

Drawdown: Peak-to-trough decline during a specific record period. Drawdown is usually quoted as the percentage between the peak and the trough and helps determine an investment's financial risk.

Earnings per Share (EPS): Net income divided by the number of outstanding shares of common stock.

EPS Growth (%): Rate of growth in net-income-per-share over a designated timeframe such as trailing one-year period.

Exchange-traded funds (ETFs): Baskets of securities that trade like individual stocks on an exchange. ETFs are traded throughout the trading day and can be bought on margin.  See: ETF Model Portfolio Returns

Fidelity Select® Funds: Group of 39 equity mutual funds that focus their investments on a particular sector or industry of the stock market.

Fidelity Spartan 500 Index® Fund: A Fidelity mutual fund seeking investment results that correspond to the total return of common stocks publicly traded in the United States, as represented by the Standard & Poor's 500 Index (S&P 500®), while keeping transaction costs and other expenses low.

Fidelity Spartan® Total Market Index Fund: A Fidelity mutual fund seeking to provide investment results that correspond to the total return of a broad range of United States stocks. The fund normally invests at least 80% of the fund's assets in common stocks included in the unmanaged Dow Jones Wilshire 5000 Total Market Index.

Liquidity: Degree to which an ETF can be traded without affecting the ETF's price. ETFs with limited liquidity tend to have higher bid-ask spreads.

Market Capitalization: Number of outstanding shares of a company's common stock multiplied by the stock price.

Minimum holding period: For no transaction fee (NTF) funds, minimum number of days or months a fund needs to be held to avoid both fund's short-term redemption fee and broker's transaction fee.

Minimum Required Investment: Smallest initial investment amount that a mutual fund will accept to establish a new account. The minimum investment amount may be lower for certain types of retirement accounts such as IRA, Keogh or SEP-IRA accounts than for regular accounts.

P/E Ratio (P/E): Valuation ratio calculated by dividing the company's current share price by its per-share earnings. Forward P/E uses forecasted earnings per share for the next 12 months or for the next full fiscal year for the P/E calculation.

Percent of Top 10 Holdings: Percentage of assets allocated to the top 10 holdings in the portfolio of a mutual fund or ETF. It provides a measure of concentration of the top 10 holdings in the mutual fund's or ETF's portfolio.

Redemption Fee: Fee charged by a mutual fund when shares are sold within a specified period after purchase. The specified period varies by fund, typically ranging from 30 to 365 days.

Risk Adjusted Return: A measure of the risk a portfolio assumed to earn its returns. The higher the return per unit of risk, the better. AlphaProfit uses Sharpe Ratio to calculate risk adjusted returns. Sharpe Ratio is explained below.

Risk Rating: AlphaProfit Investments, LLC classifies ETFs, sector funds, and stocks into 3 risk categories, 'Above Average', 'Average', and 'Below Average' based on the investment's historical returns or price changes.

Sector Fund: A type of mutual fund that focuses its investments within a specific sector or industry of the economy.

Sector Rotation: An investment process where the investor seeks to increase returns by opportunistically switching from one sector to another.

Sharpe Ratio: This ratio is commonly used as a measure of risk adjusted return. This ratio is calculated using the formula, (portfolio return minus risk free return)/standard deviation of portfolio return. The return on the Vanguard® Prime Money Market Fund is used as a measure of risk free return. Higher Sharpe Ratio implies superior risk-adjusted performance.

S&P 500®: About 500 stocks chosen by Standard and Poor's, Inc. It is a market-value weighted index (stock price times number of shares outstanding) that is widely used as a benchmark of U.S. equity performance.

Stop-Loss: A sell order to be executed if a stock's price falls below a specified level.

Target Index: Index used by an ETF or index mutual fund to select securities for investment. Target index, also called underlying index, enables ETFs or index mutual funds to mirror the composition of a market segment or the total market.

ValuM™ Investment Process: This is a proprietary investment process used by AlphaProfit Investments, LLC to select investments. The investment process selects sector funds for investing the model portfolio based on the sector's momentum, valuation, and news flow quality.   More on ValuM investment process

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Sam Subramanian



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