Absolute return on investment
The return generated on a portfolio or portfolios of assets, measured in kronor or per cent, of the original invested amount.
Asset management actively deviates from the benchmark index in order to create added value.
Active risk/Tracking error
The variation in relative return. Often measured as standard deviation on the relative return. Active risk is calculated using daily data to determine relative return.
Asset Liability Modelling. An analytical model used to determine the Fund’s strategic portfolio. The study, which is revised on a continual basis, is desig ned to determine the optimal composition for the different classes of asset under Fund management, to ensure that it satisfies the Fund’s long term commitment to the collective requirements of the Swedish national pension system. The judgements based on this analysis shall take into account demo graphic change as well general economic trends.
Index based on Andra AP-fonden’s strategic portfolio, against which the Fund’s management performance is measured.
Brokerage commission is the fee paid to the bank when trading in shares.
Credit risk/counterparty risk
Credit risk: Credit risk refers to the risk that an issuer may become insolvent or be given a lower credit rating.
Counterparty risk: Refers to the risk that the other party may be unable to meet its business obligations.
An annex to the ISDA agreement that regulates how the party with an outstanding debt (unrealised loss) must provide collateral for the debt in the form of liquid funds or securities.
Currency hedging allows an uncertain future exchange rate between two currencies to be locked in through the use of derivatives. It protects against foreign-exchange risks.
A collective name for a form of securities. The most common derivatives are options, futures, warrants and swaps. A characteristic of financial derivatives is that they are linked to events or conditions at one specific point in time in the future.
A measure of interest risk that yields an asset-relative change in value with an interest adjustment of one percentage unit.
Projected calculations that look ahead in time.
Calculations from realised data that look back in time.
Fair value is defined as the amount for which an asset may be transferred or a debt settled, between parties who are mutually independent and who have a vested interest in completing the transaction. Normally speaking, this means that listed assets are valued at the buying-rate (market value) and that the fair value of non-listed assets is estimated with the help of generally accepted valuation models.
A derivative instrument involving a contract to purchase foreign currency at some future date at a predetermined rate of exchange.
Risk in individual positions that can be diversified if the number of positions are increased.
Return contributions that derived from implementation of the strategic portfolio and index switches.
A gauge of risk-adjusted relative return. Measured as relative return, divided by tracking error.
Interest rate swap
A contract between two counterparties, in which one interest flow is exchan ged for another. Normally, the undertaking given by one party to pay a fixed rate of interest is exchanged for the other party’s undertaking to pay a floating rate of interest.
International Private Equity and Venture Capital Valuation Guidelines.
International Swaps and Derivatives Association. An ISDA contract is a standard contract for the regulation of trading in derivatives between two counterparties.
Refers to the risk that securities cannot be converted into cash, because of redu ced access to or demand from the market, which either precludes the purchase or sale of such securities, or would require their sale at a lower price.
The market risks most relevant to Andra AP-fonden are share-price risk, interest-rate risk and currency risk.
International equity indices managed by Morgan Stanley Capital International.
Refers to the risk that an error or stoppage in operations could lead to economic loss or reduced credibility.
Asset management that focuses on exposing incorrect market pricing with the help of a mathematical model.
Portfolio return compared to return on Fund’s strategic portfolio. The return is cleared of commission and operating expenses.
S&P/Standard & Poor’s
Standard & Poor’s composite index. A cap-weighted share index with over 500 US companies. Selection is based on size, liquidity and industrial sector, among other factors.
A gauge of risk-adjusted return. Measured as the portfolio’s absolute return
less risk-free interest (SSVX 12 months), divided by the standard deviation on
Andra AP-fonden’s strategic portfolio is determined annually by the Board of Directors and confirms the Fund’s decision on strategic asset allocation.
Market risk segment that cannot be diversified by increasing the number of positions.
Tactical Asset Allocation. An active investment strategy that centres on taking advantage of differences in expected performance of various asset classes.
A measure of risk that indicates the maximum loss, based on a given confidence level, that a portfolio may incur over a given period. VaR is normally calculated at a confidence level of 95 per cent.
Volatility refers to the amount the price of a financial asset varies over time. This is normally expressed as a percentage, in terms of the standard deviation.