CFA® glossary: S

86 terms beginning with S.

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Safety-first ratio

Expected return minus a minimum acceptable return, divided by standard deviation. With normal returns, the portfolio with the highest ratio has the lowest probability of falling below that minimum.

Sale-leaseback

Selling an asset, usually property, and leasing it back. The company releases cash while keeping use of the asset, but takes on lease obligations in place of ownership. Where it appears →

Sampling error

The difference between a sample statistic and the population parameter it estimates, arising purely from which observations happened to be drawn. It shrinks as the sample grows; bias does not. Where it appears →

Say-on-pay

A shareholder vote on executive pay. Often advisory rather than binding, depending on jurisdiction, but a large vote against still leaves the board something to answer.

Scenario analysis

Changing a coherent set of inputs together to describe a recognisable state of the world, such as a recession. It captures risks arriving together, which one-at-a-time testing misses. Where it appears →

Seagull

A put spread with a call written as well: buy a put, sell a lower-strike put and sell a call, bringing the cost near zero. Protection stops below the lower strike, and gains are capped above the call.

Seasonal lag

The lag one year back in a time-series model: four for quarterly data, twelve for monthly. A significant residual autocorrelation there calls for adding it to the model. Where it appears →

Secondary market

Where investors trade existing securities among themselves, the issuer receiving nothing. Its liquidity is what makes new issues saleable, so it lowers the cost of raising capital. Where it appears →

Secondary offering

A phrase with two senses: a follow-on issue of new shares, which raises capital and dilutes holders, or a large sale by existing holders, which raises nothing for the company.

Secured overnight financing rate

The US dollar overnight rate on repurchase agreements backed by Treasuries, which replaced Libor as the main dollar reference rate. Being secured and overnight, it carries almost no credit risk.

Securities lending

Lending portfolio securities, usually to short sellers, against collateral and for a fee. The income can offset an index fund's costs, but it brings counterparty and collateral reinvestment risk. Where it appears →

Segment disclosures

Revenue, profit and often assets reported for each business line of a diversified company. Segments follow how management runs the business, so they help comparison but can be redrawn. Where it appears →

Selection bias

Distortion that arises when the sample is not representative of the population it is meant to describe. In hedge fund databases managers choose whether to report, and poor performers tend not to. Where it appears →

Sell-side

Brokers and investment banks, whose analysts publish research for clients. The research helps win trading and advisory business, which can push ratings towards the favourable.

Semi-deviation

Dispersion measured using only the returns below the mean, so pleasant surprises no longer count as risk. The target version uses a chosen threshold, such as zero, in place of the mean.

Semi-strong form

The hypothesis that prices reflect all public information and adjust as soon as it is released, so fundamental analysis of published data cannot earn abnormal returns.

Sensitivity analysis

Varying one input at a time, holding the rest fixed, to see how far the result moves. It shows which assumptions matter, but cannot show what happens when several go wrong together. Where it appears →

Serial correlation

Correlation between successive regression errors, common in time series. Positive serial correlation typically makes standard errors too small, so coefficients look more significant than they are. Where it appears →

Servicer

The firm that collects payments on a securitised pool's loans, pursues late payers and passes the cash on for investors. Often the originator, it keeps that role after the loans are sold. Where it appears →

Shakeout

The life-cycle phase in which capacity overtakes slowing demand, prices fall and weaker firms exit. Often the result of capacity built on growth forecasts extrapolated too far. Where it appears →

Share repurchase

A company buying back its own shares, returning cash only to holders who choose to sell. It reduces shares outstanding, which can lift earnings per share without any value being created. Where it appears →

Shareholder activism

Buying a meaningful stake in a company to press for change, from private letters to public campaigns and proxy contests, and profiting when the change releases value. Concentrated, slow and costly, and it can fail.

Sharpe ratio

Return in excess of the risk-free rate per unit of total volatility: the slope of the line from the risk-free asset to a portfolio. It penalises upside and downside alike, so it flatters negatively skewed strategies. Where it appears →

Short selling

Borrowing a security, selling it and later buying it back to return, so as to profit from a fall. The possible loss is unlimited, and the seller must pay the lender any dividends meanwhile. Where it appears →

Short-run aggregate supply

Output supplied while wages and some input prices are slow to adjust, so it slopes upward: a rise in demand lifts output as well as prices until those costs catch up.

Shortfall risk

The probability that a portfolio ends below a threshold that matters: the liabilities for a pension plan, or a minimum return or the sum a goal needs for an individual.

Singer–terhaar model

A market's risk premium estimated as a blend of two extremes, full integration (priced off its correlation with the global market) and full segmentation (priced off its own volatility), plus any illiquidity premium. Where it appears →

Sinking fund

A requirement to retire part of a bond issue each year, often by lot. Good for holders collectively, and a lottery for whoever is drawn. Where it appears →

Situational influences

Outside pressures — deadlines, incentives, loyalty to colleagues, what everyone else is doing — that shape behaviour far more than people expect. Those surest they are immune are the most exposed. Where it appears →

Size premium

An addition to the required return for small companies, for their greater risk. Common in private company valuation, though the evidence for it is debated and it can overlap other premiums. Where it appears →

Skewness

A measure of a distribution's asymmetry. Negative skew means a long tail of losses, with the mean dragged below the median — typical of asset returns, and unwelcome. Where it appears →

Smart beta

Rules-based strategies that weight holdings by a factor such as value, size, low volatility or quality instead of market capitalisation. Transparent and cheap like an index, but a deliberate tilt away from it. Where it appears →

Smart order router

Software that splits and sends orders across trading venues, lit and dark, to wherever the best available price and liquidity are at that moment. Needed because liquidity is fragmented across many venues. Where it appears →

Soft dollar arrangements

Using client brokerage commissions to pay for research or services beyond execution. The commissions belong to the client, so what they buy must benefit the client who paid them.

Softs

Agricultural commodities other than grains and livestock, such as coffee, cocoa, sugar and cotton. Some, like coffee and cocoa, grow on trees that take years to bear, so supply responds slowly to price. Where it appears →

Sole proprietorship

A business owned and run by one person, with no legal separation between owner and business. Profits are taxed as the owner's income and the owner is personally liable for all its debts.

Sortino ratio

Return above a minimum acceptable return divided by downside deviation, the volatility of returns below that minimum. Unlike the Sharpe ratio, it penalises only the volatility that hurts. Where it appears →

Special purpose entity

The vehicle a securitisation's loans are sold to, put beyond the reach of the seller's creditors. That legal isolation is what the ratings rest on. Where it appears →

Special situations

Private credit strategies built around events such as distress, rescue financing, restructuring and litigation. Returns come mostly from lumpy gains when the event resolves, not from steady income. Where it appears →

Spending rule

The formula that sets how much is withdrawn from a portfolio each year, often a percentage of a smoothed average of past values so that spending does not swing with markets. Where it appears →

Spillovers

Benefits of an investment that flow to others without payment, such as knowledge from one firm's research that rivals can use. They make the social return exceed the private return. Where it appears →

Spin-off

Separating a business by distributing shares in it to the parent's existing shareholders. No cash comes in, but it is often tax-free, sharpens focus and gives investors a pure-play holding. Where it appears →

Split-rate tax system

A tax system that taxes distributed profits at a lower corporate rate than retained ones, offsetting part of the double taxation of dividends.

Sponsored receipt

A depository receipt created with the issuing company's involvement, so holders generally get voting rights and company information. An unsponsored one, set up by a bank alone, generally carries neither.

Spoofing

Placing orders one does not intend to let execute, to create a false impression of supply or demand and move the price, then cancelling them. Layering does the same with several orders at different prices.

Spot rate

The yield on a single payment at one future date. Pricing each of a bond's cash flows at its own is the arbitrage-free answer. Where it appears →

Spread duration

The approximate percentage change in a bond's price for a one percentage point change in its credit spread, with the benchmark yield held fixed. For a fixed-rate bond it is close to modified duration. Where it appears →

Stable dividend policy

Paying dividends that rise gradually with sustainable long-run earnings rather than with each year's result. Often modelled as closing a fixed fraction of the gap to the target payout each year.

Stablecoin

A digital asset designed to hold a fixed value against a currency or other asset, usually by holding reserves. It is only as stable as whatever backs the peg.

Standard deviation

The square root of variance, and so in the same units as the data. The usual measure of dispersion and of investment risk, though it counts pleasant surprises as risk too. Where it appears →

Standard error

The dispersion of an estimate rather than of the data. It shrinks with the square root of the sample, so precision gets expensive quickly. Where it appears →

Standardised unexpected earnings

An earnings surprise divided by the standard deviation of past surprises, so a given surprise counts for more at a company whose earnings are usually predictable.

Standards of professional conduct

The enforceable rules that apply the Code's principles to particular situations, worked through case by case in the Standards of Practice Handbook. Breaching one can lead to a sanction. Where it appears →

Steady state

A path on which the key ratios stop changing. In neoclassical growth theory, capital per worker is constant and output per worker grows only with technology; in a valuation forecast, it is the stable phase a terminal value captures. Where it appears →

Stemming

Cutting words to a common root, such as 'downgrad' for downgrade and downgraded, so variants count as one token. Cruder than lemmatisation, which maps each to a dictionary word. Where it appears →

Sterilisation

Central bank action that offsets the effect of currency intervention on the domestic money supply, such as selling bonds after buying foreign currency. It resists appreciation without loosening monetary policy.

Stock dividend

A dividend paid in new shares rather than cash. Every holder keeps the same proportion of the company, so the price per share falls and nothing of value changes hands. Where it appears →

Stop words

Very common words, such as 'the' and 'is', removed from text before analysis because they carry little meaning. Some, like 'not', can matter to the result. Where it appears →

Straight value

The value of a convertible bond as if it had no conversion option, from discounting its coupons and principal. It acts as a bond floor under the price while the issuer's credit holds. Where it appears →

Strategic asset allocation

The long-term target weights for each asset class, derived from the investor's objectives and constraints. It explains most of the variation in a portfolio's returns over time. Where it appears →

Strategic buyer

An acquirer, usually in the same or a related business, that expects synergies from combining with the target and so may justify a higher price than a financial buyer. Where it appears →

Stratified sampling

Dividing a population into groups that share a characteristic and sampling randomly within each, in proportion to its size. More precise than simple random sampling when the groups differ. Where it appears →

Strong form

The hypothesis that prices reflect all information, public and private, so not even insiders can earn abnormal returns. Almost nobody believes it holds.

Structural subordination

Debt at a parent ranking behind the creditors of the subsidiary that owns the assets, because the parent holds only its equity. Where it appears →

Style drift

A manager moving away from the style or strategy it was hired for, such as a value fund buying growth stocks. It leaves the client with exposures it did not choose. Where it appears →

Subscription line

A credit facility a private fund draws on instead of calling capital at once, secured on investors' uncalled commitments. Delaying calls shortens the time capital is invested, raising IRR without adding value.

Substitution bias

The overstatement of cost-of-living increases by a fixed-basket index, because consumers switch away from goods whose prices have risen and the basket does not follow them.

Succession event

A corporate change, such as a merger or demerger, that moves an entity's debt to another. It may change a credit default swap's reference entity but does not itself trigger a payout.

Suitability

Whether an investment fits a particular investor's objectives, constraints and experience. Under Standard III(C) it is judged against the whole portfolio, or against the stated mandate where a manager runs one. Where it appears →

Sum-of-the-parts

Valuing a group by valuing each business segment separately, adding the values and deducting net debt and other claims. The shortfall of the group's market value below it is a conglomerate discount. Where it appears →

Sunk cost

A cost already incurred that cannot be recovered whatever is decided now. It is irrelevant to whether a project should go ahead, so it belongs nowhere in the project's cash flows.

Sunset clause

A provision ending a special arrangement, such as super-voting shares, after a set period or event. It limits how long control can stay separated from ownership.

Supervised learning

Machine learning trained on data labelled with the correct answer, so it can predict the label for new cases. Predicting a category is classification; predicting a number is regression. Where it appears →

Supervisory responsibility

Authority over others' conduct, whatever the title. Standard IV(C) requires reasonable efforts to ensure those supervised comply; without adequate compliance procedures, the role should be declined in writing. Where it appears →

Supplemental information

Under GIPS, material presented alongside a compliant report that adds to or clarifies it but is not required. It must be clearly labelled and must not contradict the required information. Where it appears →

Supply curve

The quantity sellers offer at each price, with input prices, technology, taxes and the number of sellers held fixed. A change in any of those shifts the whole curve.

Supranational

An issuer owned by several member countries, such as a multilateral development bank. Backed by its members' capital, it typically borrows at very high credit ratings. Where it appears →

Surplus volatility

The volatility of assets minus liabilities, the risk that matters to an investor who owes something. Cash looks risk-free on its own but can carry a lot of it when the liabilities behave like long bonds. Where it appears →

Survivorship bias

The upward tilt from studying only the funds or firms that still exist, because the failures have dropped out of the database. It flatters average performance and understates risk. Where it appears →

Swap rate

The fixed rate on an interest rate swap that makes it worth zero at the start. It is the par yield implied by the swap's discount factors, and the curve of these rates is a market benchmark. Where it appears →

Swap spread

The swap rate minus the government bond yield of the same maturity. It reflects credit and liquidity conditions and the supply of government bonds, and can even be negative. Where it appears →

Swaption

An option to enter an interest rate swap at a set fixed rate. A payer swaption gives the right to pay fixed and gains when swap rates rise; a receiver swaption gives the right to receive fixed. Where it appears →

Switching costs

What a customer loses by moving to a rival — money, time, retraining or data. High ones lock customers in and are among the sturdiest sources of lasting competitive advantage.

Synergies

Cost savings or extra revenue from combining businesses that neither could achieve alone. A buyer creates value only if its standalone value plus synergies exceeds the price it pays. Where it appears →

Synthetic rating

An estimated credit rating for an unrated issuer, from ratios such as interest coverage matched against those of rated companies. The matching spread over government yields gives a pre-tax cost of debt. Where it appears →

Systematic risk

Risk that cannot be diversified away because it moves the whole market. The only kind anyone is compensated for holding. Where it appears →