1. Putnam’s glossary Investor Education
of common investment terms
Active share is the percentage of a fund’s holdings that Down-market capture ratio is used to evaluate how
differs from the benchmark index. A high active share well a fund has performed relative to an index during
results from overweighting and underweighting a periods when that index has declined. The ratio is
portfolio’s holdings versus the benchmark index and calculated by dividing the fund’s returns by the returns
by holding positions not in the benchmark index. of the index during the down market and multiplying
that factor by 100. A down-market capture ratio of less
Alpha is a measure of risk-adjusted performance.
than 100% means the fund has lost less than the index
A positive alpha means the fund’s risk-adjusted returns
during down markets.
have been higher than those of its benchmark; a negative
alpha means the returns have been lower. Duration measures the sensitivity of bond prices to
interest-rate changes and is expressed in years. A nega-
Beta measures the volatility of a fund in relation to the
tive duration indicates that a security or fund may be
fund’s benchmark. A beta of less than 1.0 indicates lower
poised to increase in value when interest rates increase.
volatility than the benchmark; a beta of more than 1.0
indicates higher volatility. Futures contracts are exchange-traded financial
contracts obligating a party to buy or sell an asset at a
Correlation is a measure of how similar the historical
predetermined date and price. The underlying asset can
performances of two different asset classes have been.
be any number of financial instruments, including stocks,
The maximum correlation is 1.0 and the minimum is
bonds, or commodities. Futures are generally used either
–1.0. A positive correlation close to 1.0 indicates that the
as a hedge for future price fluctuations or to gain exposure
historical returns of the two asset classes being compared
to the underlying asset. Treasury futures are among the
have been very similar. A negative correlation close to
most heavily traded futures contracts, and are tied to the
–1.0 indicates that the historical returns of the two asset
performance of the underlying Treasury bonds. Because
classes being compared have been opposite each other.
the price of U.S. Treasuries is driven primarily by changes
For example, when one gained 5%, the other declined 5%.
in interest rates, Treasury futures can be an efficient way
Correlations near zero indicate that there has been little
to hedge interest-rate risk or establish an investment posi-
discernible relationship between the two asset classes
tion based on views of future rate levels.
being compared.
Information ratio is a risk-adjusted measure of fund
Distribution yield represents the annual interest or divi-
performance relative to benchmark performance. It is
dend distributions paid on an investment expressed as
calculated by dividing the average excess return of a fund
a percentage of the investment’s price. Prices and yields
over a benchmark by the fund’s tracking error over a given
move in opposite directions: When prices go up, yields go
period. A higher information ratio means better fund
down, and vice versa.
performance relative to benchmark performance on a
risk-adjusted basis.
(over, please)

2. Risk parity is an investment strategy through which a
multi-asset portfolio manager seeks to establish parity
among the contributions of each asset class to the
portfolio’s total risk profile. Risk parity strategies typically
have smaller allocations to equities than traditional asset
allocation strategies and use leverage to seek to increase
the returns of less volatile asset classes, such as bonds.
SEC yield is a standardized measure developed by the
Securities and Exchange Commission for comparing
the yields of fixed-income portfolios. The SEC yield is an
annualized figure based on the income, net of expenses,
that a portfolio generates over a certain period of time —
typically seven days for money market funds and 30 days
for bond funds.
Sharpe ratio is a measure of risk-adjusted performance.
It is calculated by subtracting the risk-free rate of return
(as measured by Treasury bills) from the fund’s return, and
dividing that figure by the standard deviation of the fund’s
return. The higher the ratio, the better the fund’s return
per unit of risk taken.
Swaps are contractual agreements between two parties
to exchange, or “swap,” financial instruments. The most
common variety of swap is an interest-rate swap, by
which one party typically trades cash flows on a variable
or floating interest rate in exchange for the cash flows on
a fixed interest rate. Interest-rate swaps are a common
means for helping to offset the risk of rising interest rates.
Up-market capture ratio is used to evaluate how well a
fund has performed relative to an index during periods
when that index has risen. The ratio is calculated by
dividing the fund’s returns by the returns of the index
during the up market, and multiplying that factor by 100.
An up-market capture ratio of more than 100% means the
fund has gained more than the index during up markets.
Yield curve is a graph that plots the yields of bonds with
equal credit quality against their differing maturity dates,
ranging from shortest to longest.
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