Definition Private Equity (PE) refers to capital investment made into companies that are not publicly traded on a stock exchange. It encompasses a range of investment strategies, including direct investments in private companies, leveraged buyouts (LBOs) and investments in venture capital. Private equity firms raise funds from institutional investors and accredited individuals, aiming to acquire, restructure or grow companies, ultimately seeking to sell the investment at a significant profit.
Definition A proxy fight refers to a proxy contest, wherein a group of shareholders attempts to gain control or influence over a company’s management or board of directors by collecting votes from other shareholders. Shareholders provide their voting rights to someone else (the proxy) to vote on their behalf, often in situations where they are dissatisfied with the existing management or strategic direction of the company.
Components of a Proxy Fight The key components involved in a proxy fight include:
Definition Return on Investment (ROI) is a key financial metric used to measure the profitability of an investment relative to its cost. It expresses the gain or loss generated from an investment, particularly in relation to the capital invested. Typically expressed as a percentage, ROI helps investors determine the efficiency of their investments and compare the profitability of various options. The basic formula for ROI is:
\(\text{ROI} = \frac{\text{Net Profit}}{\text{Initial Investment}} \times 100\%\) Components of ROI Net Profit: This is the total return from the investment minus the costs associated with that investment.
Definition Robo Advisors are automated investment platforms that provide portfolio management and financial planning services using algorithms and artificial intelligence, with limited human interaction. The primary function of Robo Advisors is to create and manage diversified investment portfolios based on the investor’s goals, risk tolerance and time horizon.
Components of Robo Advisors Algorithmic Portfolio Management: Robo Advisors employ algorithms to automatically manage, rebalance and optimize investment portfolios based on market conditions.
Definition Sector rotation is an investment strategy that involves shifting investments among different sectors of the economy to capitalize on the cyclical performance of industries. The strategy is based on the notion that different sectors outperform or underperform during various phases of the economic cycle, such as expansion, peak, contraction and trough.
Components of Sector Rotation Economic Cycles: Understanding the four main phases—expansion, peak, contraction and trough—is crucial as each phase influences sector performance differently.
Definition A Share Buyback, also known as a stock repurchase, is a corporate action in which a company buys back its own outstanding shares from the stock market. This process reduces the number of shares available in the open market, which can lead to an increase in the value of remaining shares. Share buybacks signal to investors that management believes the stock is undervalued and can enhance various financial metrics such as earnings per share (EPS).
Definition Tactical Asset Allocation (TAA) is an active investment management strategy that seeks to improve portfolio returns by temporarily adjusting asset allocation models based on current market conditions or economic forecasts. By diverging from a long-term strategic allocation, TAA allows investors to capitalize on market movements and changes driven by economic indicators.
Components of Tactical Asset Allocation Asset Classes: Commonly utilized asset classes in TAA include equities, fixed income, commodities and cash equivalents.
Definition Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors seek out companies that the market has undervalued, believing that their true worth will eventually be recognized, leading to price appreciation. This strategy is based on the idea that the market overreacts to both good and bad news, causing stock prices to fluctuate more than their underlying fundamentals justify.
Definition Venture Capital (VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth. Venture capital investments are essential for startups without access to capital markets, providing not only funding but also strategic guidance, networking opportunities and operational support.
Investment Strategy High Risk, High Reward: VC funds invest in the early stages of companies in exchange for equity, taking higher risks in anticipation of substantial returns.