DEFINITIONS

Active Share is a score that indicates how different the fund’s holdings and weights are from the benchmark. A fund that has a low score (<40%) will look very similar to the benchmark. A fund with a high score (>80%) will look very different from the benchmark.

Alpha is the excess return adjusted for beta.

Beta is a statistic that provides insights into how much a securities price has historically fluctuated relative to a specific benchmark. A beta of 1 means that the security moves in-line with the benchmark. A beta of 0 means that the movement of the security and the benchmark have no relation in their movements. A beta of -1 means that a security moves exactly in the opposite direction of the moves in the benchmark.

Downside Capture Ratio measures how much the security out or under performs during down-markets.

Enterprise Value (EV) is the market value of common stock + market value of preferred equity + market value of debt + minority interests – cash and investments. This represents the “total” market value of the company, or what it would cost to acquire all of the firm’s assets at current prices.

Enterprise Value (EV) to Net Operating Profit After-Tax (NOPAT) multiple is the total market value of a business (equity, debt, minority interests, and cash) divided by income generated by core business operations (excluding impact of debt financing).

Excess Return is the difference between the portfolio (or stock) and the benchmark.

Mean is a the average of a list of numbers.

Mean Reversion is the tendency over time for data points in a series that are far from the mean to be followed by data points closer to the mean.

Net Operating Profit After-Tax (NOPAT) measures the operating profit of the business after taxes and excludes the impact of interest expenses related to financing decisions.

Operating Margin is Operating Profits divided by sales (or revenue). It allows you to compare profitability across companies and industries by standardizing across sales levels.

Operating Profit is the profit of a company after it pays expenses attributed to its sales but before interest, taxes, restructuring and other onetime charges.

Price-to-Earnings (P/E) Ratio is the standardized valuation metric. The higher the number, the more expensive the stock is for each dollar of earnings per share.

PV of Distributable Cash Flows is our forecasted cash flows for the company after capital expenditures have been made – thus available to be distributed to shareholders as dividends, share repurchases, or debt reduction payments – discounted at an appropriate rate to their present value.

Return on Invested Capital (ROIC) is calculated by dividing NOPAT by Tangible Invested Capital. ROIC helps us understand if management is creating shareholder value. See below for definitions of NOPAT and Tangible Invested Capital.

Sharpe Ratio is the standardized risk adjusted return of a security. The higher the number the more return you earn for each unit of risk.

Standard Deviation measures the volatility of returns by showing the dispersion of returns around the average return.

Tangible Invested Capital is tangible operating assets minus non-debt current tangible liabilities.

Terminal value is our estimated value of the firm in the final year of our forecast.

Tracking Error is the standard deviation of the difference between the security’s return and the benchmark. The higher the number the larger the deviation from the benchmark.

Upside Capture Ratio measures how much the security out or under performs during up-markets.