glossary

Active Employee: A person currently employed by one of Wisconsin's state agencies or local governments that particpate in the Wisconsin Retirement System.

 

Active Management: A process for managing a portfolio in which investment staff makes the day-to-day decisions on what to buy and sell with the goal of generating a return on investment that is greater than the market would otherwise provide.

 

Actuarial Liability: The funds needed to cover the present value of benefits earned to date plus the present value of benefits that result from future increases in salary on service already earned.

 

Actuary: A person who statistically calculates risk, premiums, life expectancies and other information critical to pension systems.

 

Alternative Investments: These investments include the private equity and private debt holdings that carry greater risk, but offer the prospect of greater return.

 

Annual Report: A report released once a year containing information about a company and its financial statements based on the fiscal year.

 

Annuitant: In the Wisconsin Retirement System, a retiree who receives periodic payments based on a formula established by law.

 

Asset Allocation: The process of dividing investments among different types of assets - such as stocks, bonds, real estate and cash - in a combination that is expected to provide the total return needed over time while controlling overall risk.

 

Asset Classes: Major categories of financial securities. Major asset classes include stocks, bonds and real estate.

 

Assets Under Management: In the Wisconsin Retirement System, the assets under management include the contributions made by, and on behalf of, participants as well as the investment returns on those contributions.

 

Balanced Fund: A fund that typically invest in a mixture of assets, including stocks, bonds and other holdings. The Core Retirement Fund is a balanced fund.

 

Basis Point: A unit of measure used in the investment industry. One basis point equals one-hundredth of one percentage point (1 basis point represents 1 cent for each $100).

 

Benchmark: A standard or reference point -- often a index fund -- used to measure or judge the performance of investments.

 

Bond: A debt of a corporation or government. A bond is basically a promise to pay a set amount of interest at intervals over a given time and to repay the principal on the date of maturity (expiration).

 

Cash: In the WRS Trust Funds, cash is typically temporary balances awaiting permanent investment. These funds are invested in short-term and intermediate-term investments in U.S. government and agency securities and other quality debt that can be easily converted to cash. 

Certificate of Deposit: Usually called a CD, a certificate for a bank deposit that earns a specific interest rate for a given time period.

Commercial Paper: A promissory note issued by a large company in need of short-term financing.

Core Fund (formerly Fixed Fund; name changed in 2006): The trust fund which holds the largest part of the Wisconsin Retirement System assets. It is a fully diversified, balanced fund. It includes a mixture of holdings, such as stocks, bonds and real estate. It is diversified to stabilize the effects of market changes. All WRS participants have at least half of their account in this fund.

Council of Institutional Investors (CII): An organization of public, labor funds and corporate pension funds which seeks to address investment issues that affect the size or security of plan assets.   It is recognized as a significant voice for institutional shareholder interests. SWIB is a founding member of CII.

Dow Jones ® Industrial Average (also known as the Dow): The most widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue-chip stocks, primarily in the industrial sector.  The 30 stocks are chosen by the editors of the Wall Street Journal (published by Dow Jones & Company), a practice that dates back to the beginning of the 20th century.  The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. 

Equity (commonly referred to as stocks): A security that represents a share of ownership in a corporation, entitling the holder to receive dividends and voting rights in managing the business.

Emerging Market: An emerging market is a country working to change and improve its economy (that is, becoming developed as defined by the World Bank) with the goal of raising its performance to that of the world's more advanced nations.

Fixed Fund: See Core Fund. The Fixed Fund was renamed Core Fund as a result of a law passed in March 2006.

Fiduciary: An individual, corporation or organization entrusted with the management, investment or disposition of another's property.

Fiscal Year: A 12-month accounting period.The fiscal year is often different from the calendar year. The state's fiscal year begins July 1.

Global Portfolio: Investments that can be made in both US and foreign markets.

High-Yield Bond: Bond that has ratings of BB or lower and pays higher yields to offset its greater risk.

Inactive member: A member of the Wisconsin Retirement System who no longer works for a WRS employer and is not yet retired, but who has left funds in the system.

Index Fund: A fund that replicates a market index, such as the Standard & Poor's 500 Composite Price Index (S&P 500). The rate of return on the fund is expected to be the same as the performance of the index.

International Investments:  Investments, such as stocks and bonds, traded on foreign markets (does not include US).

Large Company ("Large Cap") Stocks: Stocks of well established corporations that typically have market capitalizations (valuations) in excess of $5 billion. Companies are usually classified as either large cap, medium cap, small cap, or micro cap, depending on their market capitalization, but the dividing lines are somewhat arbitrary.

Leveraged Buyout (also LBO): Takeover of a company through equity ownership using borrowed funds.

Local Governments: Public agencies located in the state, such as school districts, counties, municipalities, local authorities and special districts, that participate in the Wisconsin Retirement System or State Investment Fund.

Market Cycle: The period between the two latest highs or lows of the S&P 500, showing net performance of a fund through both an up and a down market. A market cycle is complete when the S&P is 15% below the highest point or 15% above the lowest point (ending a down market).

Mid-Size Company ("Mid-Cap") Stocks: Stocks of mid-size corporations that typically have market capitalizations (valuations) between $1 billion and $5 billion. Companies are usually classified as either large cap, medium cap, small cap, or micro cap, depending on their market capitalization, but the dividing lines are somewhat arbitrary. Companies are usually classified as either large cap, medium cap, small cap, or micro cap, depending on their market capitalization, but the dividing lines are somewhat arbitrary.

Multi-Asset Portfolio: An actively managed, globally diversified portfolio that applies asset allocation strategies across world capital markets. The Portfolio invests primarily in equity and debt opportunities in developed and emerging markets, and may also include investments in real estate, natural resources, private equity, and money market instruments.  Investments are periodically increased or decreased in each market sector based primarily upon ongoing analysis.

NASDAQ (National Association of Securities Dealers Automated Quotations): NASDAQ is the world's largest electronic stock market. NASDAQ is the primary market for trading NASDAQ-listed stocks.

NASDAQ Composite Index:  A market-value weighted index of all common stocks listed on the NASDAQ.  The index is used mainly to track technology stocks, and is not a good indicator of the market as a whole.

New York Stock Exchange (NYSE): The NYSE is the world’s largest cash equities market. It is the premier listing venue for the world’s leading large- and medium-sized companies.

Passive Management: Investing in a fund that replicates a market index, such as the S&P 500, that will allow an investment performance that is no worse, or better, than the market as a whole.

Portfolio: A group of investments generally in the same asset class, such as stocks, bonds or real estate managed by an individual or institutional investor.

Rate of Return (also, Return): A measure of profitability for an asset which encompasses both dividend payments and price appreciation of the asset over a specific period of time.

Rebalancing: The process of adjusting the allocation of various assets in a multi-asset fund (stocks, bonds, etc.) to achieve or maintain a desired mix.

REIT (Real Estate Investment Trust): Typically a publicly traded company that invests in a group of real estate investments.

Risk: The chance that the actual return from an investment may be lower than expected or not make any money on an investment. Risk may also refer to the amount of fluctuation in return from an investment or group of investments.

Quantitative/Enhanced Indexed Funds: Investments are made using proprietary computer models to automate the process of evaluating particular stocks. Substantial amounts of information about individual companies, market segments and economic trends are typically gathered and analyzed.  Using certain modifications, these actively managed funds have the goal of beating the return of the tracking index.

Securities: Stocks, bonds, money market instruments and other types of investments.

Schedule of Investments: An annual listing of the investments held by the State of Wisconsin Investment Board as of the end of the fiscal year.

Small Company ("Small Cap") Stocks: Stocks of smaller corporations that typically have market capitalizations (valuations) of under $1 billion. Although the dividing lines are somewhat arbitrary the general guidelines $250 million to $1 billion for small caps, and less than $250 million for micro caps. Traditionally, small company stocks have a greater growth potential than large or mid-cap stocks, but are also more volatile.

Stock (also called equity): A security that represents a share of ownership in a corporation, entitling the holder to receive dividends and voting rights in managing the business.

Trustees: The members of the administrative board for the State of Wisconsin Investment Board.

Variable Fund: The smaller of the two Wisconsin Retirement System funds. It is primarily a stock fund that has a relatively greater degree of risk than the Core Trust Fund due to the volatility of the stock market. Placing contributions into the Variable Fund is optional.

Venture Capital: A source of funding provided for start-up or young companies or other businesses embarking on new ventures that involve above average investment risk but offer the potential for above average returns.

Volatility: A measure of the degree of movement in investment returns. For example, the overall one-year performance of a particular portfolio may be positive, but within that time period there may have been shorter periods of both positive and negative returns.

 

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