A 10-K wrap is a summary report of a company’s annual performance that bundles the 10-K report required by the Securities and Exchange Commission (SEC) with additional commentary from the company, covering such things as the corporate vision, letter to shareholders, and business overview, among other topics.
The 10-K wrap is often released instead of a traditional annual report and generally contains fewer images and comments from management.
Key Takeaways
A 10-K wrap is part of a larger annual performance document required by the SEC.
The “wrap” is a short commentary covering the more personal side of the business, and usually includes a letter to the shareholders and a corporate vision statement.
The 10-K wrap report is shorter than a company’s annual report.
While a 10-K wrap (typically) has a lower-value production budget with limited graphics, its cover may be extremely polished by comparison.
The basic sections of a 10-K wrap summarize the company’s financial status, plus an overview of the company’s financial plans for upcoming quarters.
Usually, a 10-K wrap provides debt and spending level forecasts, as well.
Understanding a 10-K Wrap
Form 10-K is a detailed annual report that is required to be submitted to the U.S. Securities and Exchange Commission (SEC). The filing provides a comprehensive summary of a company’s performance for the year. It is more detailed than the annual report that is sent to shareholders during the annual meeting to elect directors. SEC filing 10-K outlines the company’s history, equity, subsidiaries, organizational structure, audited financial statements, and other relevant information.
The most significant difference between the traditional annual report and the 10-K wrap is how the information is presented and how much additional information is included above the required 10-K information.
The traditional annual report has a greater focus on comments from the company, and the document includes more images and graphs to communicate performance, as well as a list of corporate objectives of the company.
By contrast, the 10-K wrap is essentially the 10-K filed with the SEC and some additional editorial from the company—but not nearly as much as the annual report. It usually has a lower production cost because it is often printed on lower-quality paper.
The 10-K wrap is typically made available in print and digital formats to maximize access for shareholders, investors, and analysts.
Elements of a 10-K Wrap
The basic elements of a 10-K wrap typically include a summary of the company’s financial results for the previous year and an overview of its plans for upcoming quarters, including spending and debt level forecasts.
A 10-K plan can also include an elaborate cover design, with perhaps a theme that focuses on investors and analysts involved in the company’s projects for the upcoming year.
Graphics in the 10-K wrap will usually provide a brief overview of the company’s financials, including revenue, net profit, costs, income, and any highlights from the previous year. The graphics may also outline the company’s geographical reach or other elements of growth.
2022 10-K Filing Deadlines
10-K: Due Monday, April 18, 2022, for the fiscal year ended on Jan. 31, 2022.
10-Q: Due Tuesday, May 10, 2022, for the quarterly period ended on March 31, 2022.
Special Considerations
As the 10-K wrap has evolved, it has come to include more images and content, such as a shareholder letter and high-quality photographs. However, pictures will often be kept to a minimum.
The 10-K wrap document is usually no more than four pages long and could be even shorter, depending on what company executives want to see from the 10-K wrap report.
A 100% equities strategy is a strategy commonly adopted by pooled funds, such as a mutual fund, that allocates all investable cash solely to stocks. Only equity securities are considered for investment, whether they be listed stocks, over-the-counter stocks, or private equity shares.
Key Takeaways
A 100% equities strategy involves only long positions in stocks.
Such a strategy is common among mutual funds that allocate all investable cash solely to stocks, forgoing higher-risk instruments such as derivatives or riskier strategies such as short selling.
With 100% equity strategies, a portfolio’s style can be further subdivided into capital appreciation, aggressive growth, growth, value, capitalization, and income, among others.
Understanding a 100% Equities Strategy
100% equities strategies represent portfolios that only select investments from the equities (i.e., stocks) universe. 100% equity strategies are predominant in the market and encompass a large majority of offerings.
Generally, very few funds would be able to deploy all available capital to equity market investments without holding some cash and cash equivalents for transactions and operating activities.
In practice, many 100% equity strategies will have an investment objective or mandate to invest at least 80% in equities. The 80% threshold is a formality used in regulatory or registration documentation for the majority of equity funds in the marketplace, with many funds deploying anywhere from 90% to 100% to equities.
100% equity means that there will be no bonds or other asset classes. Furthermore, it implies that the portfolio would not make use of related products like equity derivatives, or employ riskier strategies such as short selling or buying on margin. Instead, 100% equities implies a more focused, traditional approach to equity investment.
Special Considerations
Equities are generally considered a riskier asset class over alternatives such as bonds, money market funds, and cash.
A well-diversified portfolio of all stocks can protect against individual company risk, or even sector risk, but market risks will still persist that can affect the equities asset class. Thus, both systemic and idiosyncratic risks are important considerations for aggressive equity investors. As a result, most financial advice recommends a portfolio that includes both equity and fixed-income (bond) components.
100% Equities Strategy Types
In the 100% equity strategy category, an investor will find a wide range of sub-classes to choose from, including those that focus on one (or a combination of) labels like capital appreciation, aggressive growth, growth, value, and income. Outlined below are some of the characteristics investors can expect from some of the most prominent 100% equity strategies.
Growth
Growth investing is a style used by many aggressive equity investors who are comfortable with higher-risk investments and seek to take advantage of growing companies. The Russell 3000 Growth Index is a broad market index that helps to represent the growth category.
Growth companies offer emerging technologies, new innovations, or a significant sector advantage that gives them above average expectations for revenue and earnings growth.
Value
Value stocks are often known as long term core holdings for an investor’s portfolio. These equity funds will rely on fundamental analysis to identify stocks that are undervalued in comparison to their fundamental value.
Investment metrics for value investing often include price-to-earnings, price-to-book, and free cash flow.
Income
Income investing is also a top category for core long-term holdings in a portfolio. Income funds will invest in equities with a focus on current income. Income from equity investments is primarily focused on mature companies paying steady dividend rates.
In the income category, real estate investment trusts and master limited partnerships are two publicly traded stock categories with unique incorporation structures that require them to pay high levels of income to equity investors.
Market Capitalization
Capitalization is a popular investing strategy for all equity portfolios. Generally, capitalization is broken down by large cap, mid cap, and small cap.
Large-cap companies can offer the lowest volatility as they have established businesses and steady earnings that pay dividends. Small-cap companies, on the other hand, are usually considered to have the highest risk since they are typically in the early stages of their development.
What Is a 5/1 Hybrid Adjustable-Rate Mortgage (5/1 ARM)?
A 5/1 hybrid adjustable-rate mortgage (5/1 ARM) begins with an initial five-year fixed interest rate period, followed by a rate that adjusts on an annual basis. The “5” in the term refers to the number of years with a fixed rate, and the “1” refers to how often the rate adjusts after that (once per year). As such, monthly payments can go up—sometimes dramatically—after five years.
Key Takeaways
5/1 hybrid adjustable-rate mortgages (ARMs) offer an introductory fixed rate for five years, after which the interest rate adjusts annually.
When ARMs adjust, interest rates change based on their marginal rates and the indexes to which they’re tied.
Homeowners generally enjoy lower mortgage payments during the introductory period.
A fixed-rate mortgage may be preferable for homeowners who prefer predictability with their mortgage payments and interest costs.
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How a Hybrid Adjustable-Rate Mortgage (Such as a 5/1 Hybrid ARM) Works
The 5/1 hybrid ARM may be the most popular type of adjustable-rate mortgage, but it’s not the only option. There are 3/1, 7/1, and 10/1 ARMs as well. These loans offer an introductory fixed rate for three, seven, or 10 years, respectively, after which they adjust annually.
Also known as a five-year fixed-period ARM or a five-year ARM, this mortgage features an interest rate that adjusts according to an index plus a margin. Hybrid ARMs are very popular with consumers, as they may feature an initial interest rate significantly lower than a traditional fixed-rate mortgage. Most lenders offer at least one version of such hybrid ARMs; of these loans, the 5/1 hybrid ARM is especially popular.
Other ARM structures exist, such as the 5/5 and 5/6 ARMs, which also feature a five-year introductory period followed by a rate adjustment every five years or every six months, respectively. Notably, 15/15 ARMs adjust once after 15 years and then remain fixed for the remainder of the loan. Less common are 2/28 and 3/27 ARMs. With the former, the fixed interest rate applies for only the first two years, followed by 28 years of adjustable rates; with the latter, the fixed rate is for three years, with adjustments in each of the following 27 years. Some of these loans adjust every six months rather than annually.
Hybrid ARMs have a fixed interest rate for a set period of years, followed by an extended period during which rates are adjustable.
Example of a 5/1 Hybrid ARM
Interest rates change based on their marginal rates when ARMs adjust along with the indexes to which they’re tied. If a 5/1 hybrid ARM has a 3% margin and the index is 3%, then it adjusts to 6%.
But the extent to which the fully indexed interest rate on a 5/1 hybrid ARM can adjust is often limited by an interest rate cap structure. The fully indexed interest rate can be tied to several different indexes, and while this number varies, the margin is fixed for the life of the loan.
A borrower can save a significant sum on their monthly payments with a 5/1 hybrid ARM. Assuming a home purchase price of $300,000 with a 20% down payment ($60,000), a borrower with very good/excellent credit can save 50 to 150 basis points on a loan and more than $100 per month in payments on their $240,000 loan. Of course, that rate could rise, so borrowers should anticipate a rise in their monthly payment, be prepared to sell their home when their rate goes up, or be ready to refinance.
Note
When refinancing from an ARM to a fixed-rate mortgage, it’s important to consider the new loan term carefully, as it could have a significant impact on how much you pay in total interest to own the home.
Advantages and Disadvantages of a 5/1 Hybrid ARM
In most cases, ARMs offer lower introductory rates than traditional mortgages with fixed interest rates. These loans can be ideal for buyers who plan to live in their homes for only a short period of time and sell before the end of the introductory period. The 5/1 hybrid ARM also works well for buyers who plan to refinance before the introductory rate expires. That said, hybrid ARMs like the 5/1 tend to have a higher interest rate than standard ARMs.
Pros
Lower introductory rates than traditional fixed-interest mortgages
Interest rates possibly drop before the mortgage adjusts, resulting in lower payments
Good for buyers who will live in their homes for short periods of time
Cons
Higher interest rates than standard adjustable-rate mortgages (ARMs)
When mortgage adjusts, interest rates probably rise
Could be trapped in unaffordable rate hikes due to personal issues or market forces
There’s also a chance that the interest rate might decrease, lowering the borrower’s monthly payments when it adjusts. But in many cases, the rate will rise, increasing the borrower’s monthly payments.
If a borrower takes out an ARM with the intention of getting out of the mortgage by selling or refinancing before the rate resets, then personal finances or market forces might trap them in the loan, potentially subjecting them to a rate hike that they can’t afford. Consumers considering an ARM should educate themselves on how they work.
5/1 Hybrid ARM vs. Fixed-Rate Mortgage
A 5/1 hybrid ARM may be a good mortgage option for some homebuyers. But for others, a fixed-rate mortgage may be more appropriate. A fixed-rate mortgage has one set interest rate for the life of the loan. The rate is not tied to an underlying benchmark or index rate and doesn’t change; the interest rate charged on the first payment is the same interest that applies to the final payment.
A fixed-rate mortgage could yield advantages for a certain type of homebuyer. If you’re interested in predictability and stability with mortgage rates, for example, then you might lean toward a fixed-rate loan instead of a 5/1 hybrid ARM. Comparing them side by side can make it easier to decide on a mortgage option.
5/1 Hybrid ARM vs. Fixed-Rate Mortgage
5/1 Hybrid ARM
Fixed-Rate Mortgage
The loan’s interest rate adjusts after the initial fixed-rate period.
The interest rate remains the same for the life of the loan.
Monthly payments could increase or decrease as the rate adjusts.
Monthly payments are predictable and do not fluctuate due to changing rates.
More difficult to estimate the total cost of borrowing as rates adjust.
Homebuyers can estimate their total cost of borrowing over the life of the loan.
Is a 5/1 Hybrid ARM a Good Idea?
A 5/1 hybrid ARM could be a good choice for homebuyers who don’t plan to stay in the home long term or who are confident in their ability to refinance to a new loan before the rate adjusts. If interest rates remain low and adjustments to the index rate are relatively minor, then a 5/1 hybrid ARM could save you more money over time compared to a fixed-rate mortgage.
But it’s important to consider how feasible refinancing is and where interest rates might be when you’re ready to move to a new loan. If interest rates rise, then refinancing to a new fixed-rate loan or even to a new ARM may not yield that much in interest savings.
If you don’t plan to refinance and don’t plan to move, then it’s important to consider how realistic that might be for your budget if a rate adjustment substantially increases your monthly payment. If the payment becomes too much for your budget to handle, you may be forced into a situation where you have to sell the property or refinance. And in a worst-case scenario, you could end up facing foreclosure if you default on the loan payments.
If you’re interested in refinancing from a 5/1 hybrid ARM to a fixed-rate mortgage, consider the interest rates for which you’re likely to qualify, based on your credit history and income, to determine if it’s worthwhile.
A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) is an adjustable-rate mortgage (ARM) that has a fixed interest rate for the first five years, after which the interest rate can change every six months.
Key Takeaways
A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) is a mortgage with an interest rate that is fixed for the first five years, then adjusts every six months after that.
The adjustable interest rate on 5/6 hybrid ARMs is usually tied to a common benchmark index.
The biggest risk associated with a 5/6 hybrid ARM is that the adjustable interest rate will rise to a level that makes the monthly payments unaffordable.
How a 5/6 Hybrid ARM Works
As the name indicates, a 5/6 hybrid ARM combines the characteristics of a traditional fixed-rate mortgage with those of an adjustable-rate mortgage. It starts out with a fixed interest rate for five years. Then the interest rate becomes adjustable for the remaining years of the mortgage.
The adjustable rate is based on a benchmark index, such as the prime rate. On top of that, the lender will add additional percentage points, known as a margin. For example, if the index is currently at 4% and the lender’s margin is 3%, then your fully indexed interest rate (the rate that you would actually pay) will be 7%. While the index is variable, the margin is fixed for the life of the loan.
A 5/6 hybrid ARM should have caps on how much the interest rate can rise in any given six-month period, as well as over the life of the loan. This offers some protection against rising interest rates that could make the monthly mortgage payments unmanageable.
Tip
If you’re shopping for a 5/6 hybrid ARM, or for any other type of ARM, you may be able to negotiate with the lender for a lower margin.
How Are 5/6 Mortgages Indexed?
Lenders can use different indexes to set the interest rates on their 5/6 hybrid ARMs. Two commonly used indexes today are the U.S. prime rate and the Constant Maturity Treasury (CMT) rate. The London Interbank Offered Rate (LIBOR) index was once in wide use as well, but it is now being phased out.
While interest rates can be hard to predict, it’s worth noting that in a rising-interest-rate environment, the longer the time period between interest rate reset dates, the better it will be for the borrower. For example, a 5/1 hybrid ARM, which has a fixed five-year period and then adjusts on an annual basis, would be better than a 5/6 ARM because its interest rate would not rise as quickly. The opposite would be true in a falling-interest-rate environment.
5/6 Hybrid ARM vs. Fixed-Rate Mortgage
Whether an adjustable-rate mortgage or a fixed-rate mortgage would be better for your purposes depends on a variety of factors. Here are the major pros and cons to consider.
Advantages of a 5/6 Hybrid ARM
Many adjustable-rate mortgages, including 5/6 hybrid ARMs, start out with lower interest rates than fixed-rate mortgages. This could provide the borrower with a significant savings advantage, especially if they expect to sell the home or refinance their mortgage before the fixed-rate period of the ARM ends.
Consider a newly married couple purchasing their first home. They know from the outset that the house will be too small once they have children, so they sign up for a 5/6 hybrid ARM and take advantage of the lower interest rate until they’re ready to trade up to a larger home.
However, the couple should be careful to check the 5/6 hybrid ARM contract before signing it, to make sure that it doesn’t impose any costly prepayment penalties for getting out of the mortgage early.
Disadvantages of a 5/6 Hybrid ARM
The biggest danger associated with a 5/6 hybrid ARM is interest rate risk. Because the interest rate can increase every six months after the first five years, the monthly mortgage payments could rise significantly and even become unaffordable if the borrower keeps the mortgage for that long. With a fixed-rate mortgage, by contrast, the interest rate will never rise, regardless of what’s going on in the economy.
Of course, the interest rate risk is mitigated to some degree if the 5/6 hybrid ARM has periodic and lifetime caps on any interest rate rises. Even so, anyone considering a 5/6 hybrid ARM would be wise to calculate what their new monthly payments would be if the rates were to rise to their caps and then decide whether they could manage the added cost.
Is a 5/6 Hybrid ARM a Good Idea?
Whether a 5/6 hybrid ARM is right for you could depend on how long you plan to keep it. If you expect to sell or refinance the home before the five-year fixed-rate period expires, you’ll benefit from its generally low fixed interest rate.
However, if you plan to keep the loan past the five-year mark, you may do better with a traditional fixed-rate mortgage. Your payments may be somewhat higher initially, but you won’t face the risk of them increasing dramatically when the 5/6 hybrid ARM begins to adjust.
Bear in mind that there are many different types of mortgages to choose from, both fixed-rate and adjustable-rate.
FAQs
What is a 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM)?
A 5/6 hybrid adjustable-rate mortgage (5/6 hybrid ARM) has a fixed interest rate for the first five years. After that, the interest rate can change every six months.
How is the interest rate on a 5/6 hybrid ARM determined?
The lender will set the five-year fixed rate based on your creditworthiness and the prevailing interest rates at the time. When the adjustable rate kicks in after five years, it will be based on a benchmark index, such as the prime rate, plus an additional percentage tacked on by the lender, known as the margin.
Are there any protections with a 5/6 hybrid ARM to keep the interest rate from rising too high?
Many 5/6 hybrid ARMs and other types of ARMs have caps that limit how much they can rise in any given time period and in total over the life of the loan. If you are considering an ARM, be sure to find out whether it has these caps and exactly how high your interest rate could go.
