The following glossary of terms is written specifically for RPB plan participants as part of our efforts to help you better understand your pension investments.
Active Management. An investment approach in which the investment manager uses fundamental research, market forecasting, complicated computer models and their own experience to make specific investments. The goals of active management include outperforming a benchmark index such as the S&P 500 and/or maintaining a lower level of volatility than the benchmark – over longer periods of time. Most actively managed investments are designed to add value in up markets and minimize losses in down markets.
Passive Management. An investment approach in which a fund’s holdings and strategy are predetermined based on the market benchmark, or “index” it is designed to track, such as the S&P 500. The most common form of passive investments are index funds that buy and hold all or most of the securities in the benchmark. When a particular index rises or falls, the value of the index fund that tracks that index also goes up or down by the same amount.
Asset allocation. The strategic apportionment of investment funds among asset classes, such as stocks, bonds, and real estate.
Defined contribution plan. A retirement plan in which the employer and/or the participant contribute a set dollar or percentage amount of salary (including parsonage) on a pre-tax basis to the participant’s account. The funds are invested, and retirement benefits are based on a participant’s pension account balance at retirement.
Diversification. A strategy designed to lower portfolio risk by including a wide variety of investments within a portfolio. Whether across or within asset classes, all of the managed funds in the RPB plan are strategically diversified.
Growth Investing. In contrast to value investing, a strategy for buying shares of companies based on the assumption that their stock prices have greater potential for appreciation due to rapidly expanding markets and products. Such companies typically have higher price/earnings (P/E) ratios, balance sheets with a greater proportion of debt (to fund growth), lower positive cash flows, and lower dividends.
Investment objective. The primary strategic goal of an investment portfolio such as capital appreciation, income generation, safety of principal.
Liquidity. The degree to which an asset or security can be quickly bought or sold without affecting its price. As a general rule, all funds in the RPB plan invest with managers whose holdings are liquid, ensuring that participants can quickly and cost-effectively withdraw or rebalance their savings.
Longevity risk. The possibility that an investor’s retirement savings will not last his or her lifetime.
Rebalancing. Adjustments to the asset allocation within a portfolio in response to gains or losses in one or more classes of investments that change the intended apportionment. Finance professionals generally recommend that investors re-evaluate their investment elections/asset allocation at least once a year or as their objectives change due to age and life events (marriage, birth of a child, retirement).
Risk tolerance. The degree to which an investor is comfortable with or can financially withstand volatility or longevity risk. Many investors accept higher volatility in the short term in exchange for the possibility of greater portfolio gains in the longer term.
Time horizon. The number of years until an investor will need to begin accessing his or her savings. As a rule, the more years until you retire the more you can afford to be patient through slow economic cycles and the inevitable ups and downs of investment markets. But your time horizon doesn’t end when you stop working. Your investment portfolio needs to generate sufficient returns to support your day-to-day needs in retirement. That means its value has to increase enough to last for 20 years or more after you stop working.
Value Investing. In contrast to growth investing, a strategy for buying shares of companies based on the assumption that their current stock prices do no reflect their true worth. Such companies typically have lower price/earnings (P/E) ratios, stronger balance sheets, greater positive cash flow and higher dividends than growth stocks.
Volatility. The frequency and intensity of short-term gains or losses of an investment or portfolio of investments. As a general (but not absolute) rule, the greater the potential reward of an investment, the higher its volatility.
Jewish Values Investing
Environmental, Social and Governance (ESG) Investing. Using environmental, social and corporate governance factors to measure the sustainability and ethical impact of an investment in a company.
Investment Screens. the process of eliminating (negative screens) or including (positive screens) companies in an investment portfolio based on certain criteria.
Jewish Values Investing Policy. A policy created and used by RPB to integrate Jewish values into our investment process, while maintaining our fiduciary responsibility to the retirement plan. Our JVI policy focuses on the environment, social issues, such as the health and safety of employees, good corporate governance and support of Israel, along with other issue areas as appropriate.
Proxy Vote. A proxy vote is a ballot cast by one person on behalf of a shareholder of a corporation who would rather cast a proxy vote than attend a shareholder meeting.
Social Profile. A values policy statement for translating a belief system into a quantitative data set that can be applied to the construction of a portfolio by Aperio Group.
Socially Responsible Investing (SRI). Strategy that considers both financial return and social good. Also referred to as “sustainable investing.”
Sudanese Divestment Task Force (SDTF). The SDTF was founded in 2005 by two college students. It launched successful divestment campaigns around the world targeting university endowments, asset managers and city, state, and national investment policies. SDTF worked closely with Genocide Intervention Network, and in 2006 became part of GI-NET under the leadership of Adam Sterling, an original co-founder.
URJ Chai Investment Program (CHIP). Established in 1997 by the Union of American Hebrew Congregations (now URJ) to invest funds in community development. Under CHIP, 1.8% of the Union’s invested funds will be invested in community development and, so too, will 1.8% of RPB’s assets.
Alpha. A measure of investment performance on a risk-adjusted basis in comparison to a market index used as a benchmark. Alpha is most often used for mutual funds and other similar investment types. The excess return of a fund relative to that of the benchmark is the fund’s alpha. It is often represented as a number (e.g., 3 or -5), which refers to a percentage measuring how the portfolio or fund performed compared to the index (i.e., 3% better or 5% worse).
Beta. A measure of systematic or market risk. The market, or benchmark index, has a beta of 1.0. When a portfolio has a beta of less than 1.0—say, 0.7—it has less sensitivity to market changes and is expected to appreciate less in up markets and depreciate less in down markets. Funds with a lower beta are considered to be more defensive, while funds with a higher beta are considered to be more aggressive than the market or benchmark.
Sharpe ratio. A measure of risk-adjusted returns. Funds with higher Sharpe ratios offer investors more return (versus cash) per unit of risk. While an investor’s goal is often to maximize return, the amount of risk incurred in earning that return should also be considered.
Standard deviation. A measure of how much an investment’s returns can vary from its average return. The greater the standard deviation, the greater the volatility of potential outcomes and overall risk. For example, a fund with a standard deviation of 10.0% is considered to be twice as volatile (risky) as a fund with a standard deviation of 5.0%.
General Asset Classes
Bonds (Fixed Income). A debt investment in which an investor loans money to a corporation or government for a defined period of time and at a specific annual rate of interest.
Real Assets. Physical or tangible assets, e.g., commodities, real estate, master limited partnerships.
Stocks (Equities). Ownership shares of publicly traded corporations.
Specific Asset Classes
Cash Equivalent. Short-term, highly liquid investment securities, e.g., U.S. Treasury bills, bank certificates of deposit (CDs), and money market instruments.
Commodities. Basic goods used in commerce that are interchangeable with other goods of the same type, e.g., gold, oil, wheat, and coffee beans. Commodities have historically served as an effective hedge against inflation, and their low correlation to stocks and bonds provide diversification benefits. Most of the commodities in which the RPB’s managed funds invest have well-established markets where investors buy and sell the goods through futures contracts on exchanges.
Core Bond. Investment-grade debt securities issued by corporations and the U.S. government with maturities ranging from 3 to 10 years.
Convertible Bond. Fixed-income securities that can be converted into a predetermined amount of the underlying company’s stock at certain times during the bond’s life. As debt is more senior in the capital structure than stocks, holders of convertible bonds have greater protections should the company become insolvent. But investors may also participate in the growth of the issuer by exercising their one-time option to convert the bond into stock shares.
High-Yield Bond. Fixed-income securities with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because there is greater risk that the bond issuer will default on its obligations, such securities pay a higher dividend yield than investment-grade bonds.
Master Limited Partnerships (MLPs). A business entity with publicly traded units, often in the oil and gas industry. There are two classes of MLP partners: limited partners, who purchase units in the MLP that provide the capital for the its operation and receive periodic income distributions from cash flow; and general partners, who manage the day-to-day operations of the MLP and that receive compensation based on its performance as a business venture. As a rule, the RPB’s managed fund acts as limited partner through its MLP investments.
REIT. A real estate investment trust, i.e., a publicly traded U.S. company that owns and operates real estate, e.g., hotels, office and apartment buildings, shopping centers, and industrial parks. REITs are required to distribute the bulk of their profits to investors, thus generating above-average dividend yields.
Sovereign Debt and Credit. Debt instruments issued by foreign governments in a foreign currency, as well as other debt instruments issued by corporations domestic and foreign such as short-term commercial paper, notes, and securitized obligations (e.g., mortgage pools, collateralized debt obligations, and credit default swaps).
Treasury Inflation-Protected Securities (TIPS). TIPS refer to a treasury security that provides protection against inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and because the face value rises with inflation, as measured by the Consumer Price Index, while the interest rate remains fixed.
Unconstrained Fixed Income. An investment approach that does not require a fund or portfolio manager to adhere to a specific grade of securities (e.g., investment grade) or economic segment (e.g., corporate, government, domestic). Contrary to a traditional buy-and-hold strategy, Unconstrained Bond managers may hold positions for a relatively short period of time, and may use derivatives to hedge interest rate and currency risk inherit in the underlying bonds.
Company Size (Market Capitalization)
Large Cap. Publicly traded companies with a market capitalization (total value outstanding shares) of more than $5 billion.
Mid Cap. Publicly traded companies with a market capitalization between $2 billion and $5 billion.
Small Cap. Publicly traded companies with a market capitalization of between $300 million and $2 billion.
Domestic Market. The United States.
Developed Markets. Mature economies outside the U.S., including Canada, England, Germany, France and Japan.
Emerging Markets. Developing economies around the world, usually in South America, Africa, the Middle East, and the Far East. These countries typically have fewer financial market regulations and less-stable governments, which add an additional element of risk to securities issued there, beyond typical investment risk. Companies in emerging markets are generally among the least covered by Wall Street analysts and have significant opportunity for gains and losses.