Terminology

Absolute return
Absolute return is a flexible portfolio management method which aims at achieving a set return on capital. Absolute return is different from relative return which may measure the performance of the fund against different indicies.

Benchmark
Benchmark is a reference which is commonly used to measure the performance of a given fund against a portfolio with the same risk profile. Also called reference index.

Clearing
Settlement between parties in a trade. Norsk Opsjonssentral (NOS) is a clearing house which guarantees the fullfilment of the terms of the derivative contracts. In practice this means that the clearing house buys from the seller and sells to the buyer, i.e. a customer’s counterparty will always be NOS.
 
Derivatives
Derivatives are instruments, such as futures or forwards, which derive their value from the value of an underlying security.

Diversification
To spread the portfolio on different investment objects in order to reduce risk.

Due Diligence
NEF carries out due when fund managers are chosen. Due diligence entails a review of the company, its assets, account books, contracts, risk management practice

Forward contract
Contracts for a future buy or sale of assets to an agreed price. NEF sells currency on forward contracts to avoid currency risk stemming from the currency basket of the reference portfolio.

Volatility
The degree of price fluctuations for an instrument. A statistical measurement for price fluctuations over time.

Spot price
Price for electricity due for delivery the next day. Calculated for different geographic regions within the Nordic market.

System Price
An average of the different spot prices, and the most important reference price for derivatives in the Nordic power market.