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Absolute return: The total return of an asset, portfolio or fund over a given period of time OR an investment approach that attempts to achieve a return which is not benchmarked against an index.
Units of a fund in which any interest earned or dividends paid are automatically reinvested into the fund.
Where a fund manager actively selects investments for a portfolio with the goal of performing better than its benchmark index.
Active Share is a measure of the percentage of stock holdings in a portfolio that differs from the benchmark index.
An institution that performs the day to day administration of a collective investment scheme (apart from the investment management).
A measure of fund performance that compares the return of a fund with that of its benchmark, taking account of the risk taken by the fund. Alpha is often considered to represent the value that a fund manager adds to or subtracts from a fund’s return.
A market for small, young and growing companies. AIM is operated by the London Stock Exchange and provides an opportunity for companies to raise capital without the cost and regulatory burden of a full listing on the main market.
A report prepared by the fund management company which includes details of a fund’s investments, how it performed and financial information relating to the fund. Long form annual and half-yearly managers’ reports are available on request.
How a fund manager spreads the investments of a fund, for example between different industry sectors, countries or even between different kinds of investment such as shares and bonds (depending on what is appropriate for the remit of the fund). The purpose of asset allocation is to improve risk-adjusted returns through diversification.
A wide category of investment e.g. shares, bonds, cash, etc where a market exists for the objective of trading these assets.
Any company wishing to conduct investment business in the UK is required to be authorised under the provisions of the Financial Services and Markets Act 2000. This authorisation is granted by the Financial Conduct Authority, the regulatory body for the financial services industry.
A fund that has been authorised by the Financial Conduct Authority for marketing to the public in the UK.
A fund that has been authorised by the Hong Kong Securities and Futures Commission (HKSFC) for marketing to the public in Hong Kong.
A fund typically investing in both stocks/shares, bonds or funds.
The interest rate at which the Bank of England lends to financial institutions.
An index of securities against which an investment trust can compare performance.
Beta is a measure of the volatility of a fund’s returns in comparison to the performance of the market as a whole. If a fund has a beta of less than one it is less volatile than the market, while a beta of more than one means it is more volatile.
A bond future is a contractual obligation in which the contract holder agrees to purchase or sell a bond on a specified date at a predetermined price. This type of contract can be purchased on a futures exchange market and the prices and dates for the future are determined at the time of purchase of the contract.
A period during which the stock market rises, or is expected to rise.
When an investment is sold for a higher price than it was purchased.
The different types and amounts of shares a company may have.
Means cash flow return on investment.
A commodity is a raw material that can be bought or sold, including industrial items such as iron or oil, as well as agricultural items like milk or coffee.
A share of ownership of a company, often with voting rights.
A portfolio that holds only a relatively small number of investments.
Where shareholders are offered an opportunity after a fixed period of time to wind-up a company.
A type of derivative instrument that generally provides a way of gaining exposure to the movement in price of an underlying share or index without owning the stock or physically investing in the index. Such instruments can be used with the aim of gaining a benefit from either increases or decreases of the value of the underlying asset.
An investment style that often goes against the consensus in terms of current market trends or opinion.
A bond that can be converted into shares at certain times during its life, usually at the discretion of the bondholder.
A debt instrument (‘I Owe You’) issued by a company in order to raise money. In most cases, bonds pay a fixed interest rate (coupon) over a fixed period of time and will be repaid on a particular date. See Coupon.
The system of rules and principles by which a company is organised.
The risk to each party in a contract that the other party might not live up to its responsibilities (particularly its financial responsibilities).
Denotes the interest in % paid on a bond.
The total amount of credit (typically corporate bonds) in which a fund is invested.
An assessment of a borrower’s creditworthiness, i.e. the likelihood of the borrower to repay its debts.
A company that carries out analysis on governments, companies or other institutions with the aim of assigning them a credit rating. See Credit rating.
The detailed study of the financial situation of companies. Credit research is done to give the data and information about their ability to meet the payment of borrowed money.
The difference in yield between two types of bond.
An institution or individual that exercises legal authority over financial assets and safeguards them for another individual or company.
A description for investments that generally rely on a positive economic background in order to perform well. They can likewise be expected to perform poorly when the economy is weak.
Dealing is the process of buying and selling investments.
A way of ranking funds that breaks the peer group into ten groups. For example, funds in the first decile are among the top 10% in their peer group.
The risk that a bond issuer may fail to meet its contractual obligation by failing to pay their debts.
A financial instrument that derives its value from its underlying assets. Common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indices. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives can be purchased “on margin”, i.e. at a fraction of the value of the underlying asset. Thus, they are ‘leveraged’ instruments where the risk of loss can be greater than the initial outlay. Derivatives can be used like insurance contracts (i.e. to hedge market risk) or for investment purposes.
The amount, expressed as a percentage, by which the share price of an Investment Trust is less than its net asset value per share.
Where a fund manager has complete discretion (within the investments prescribed limits) as to where he or she invests clients’ money.
Distressed bonds are those issued by companies or governments which are experiencing financial or operational problems, or may be in default or under bankruptcy.
The income that has either been paid out to you or reinvested into your fund.
The spread of different types of investment within a portfolio.
The income a company pays out to its shareholders in the form of dividends, expressed as a percentage. It is calculated by dividing the per share dividend payment by the market price of a share.
A share of a company’s profit distributed to shareholders.
The recorded location of a company or fund for tax purposes.
A dual-priced fund has two prices, one at which an investor can buy units/shares and one at which they can sell. The buying price (also called the offer price) is typically higher than the selling price (also called the bid price); the difference between them is known as the “spread”.
Duration: Duration estimates the sensitivity of a bond or bond fund to changes in interest rates. It is measured in years. The longer a bond’s duration, the more sensitive it is to interest rate movements.
The earnings of a company divided by the number of shares in issue.
An increase in an economy’s ability to produce goods and services over time.
Effective duration estimates the sensitivity of a bond´s price to changes in benchmark interest rates. Effective duration is required for the measurement of interest rate risk for complex types of bonds. See Bond.
A term used to describe a developing country, or its financial market.
The amount each class of shares is entitled to at the end of a fixed period.
A share representing an ownership interest in a company. “Equity market” means stock market.
The proportion of a fund invested in shares.
A fund vehicle that is traded like a stock on a stock exchange. It is used to track and mimic the performance of a specific market index.
The date upon which holders of a share or fund will be entitled to the next subsequent dividend payment or income distribution.
Describes the level of risk to a particular asset, asset type, sector, market or government. Also, the directional market exposure of a (absolute return) fund.
In bond investing, face value, or par value, is commonly referred to as the amount paid to a bondholder at the maturity date, given the issuer doesn’t default. However, bonds sold on the secondary market fluctuate with interest rates. For example, if interest rates are higher than the bond’s coupon rate, then the bond is sold at a discount (below par). Conversely, if interest rates are lower than the bond’s coupon rate, then the bond is sold at a premium (above par).
The manager of a fettered fund of funds can only invest in the funds of the investment house that employs him or her.
The amount the investment company needs to ensure that zero dividend preference shares can redeem at the expected price at the end of a fixed period.
A professional individual or firm authorised by the Financial Conduct Authority to provide financial advice to the public.
The Financial Conduct Authority is the UK regulator for the financial services industry.
The FSCS is the UK’s statutory fund of last resort for customers of regulated financial services firms. This means that FSCS can pay compensation to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it.
Assets such as shares or bonds issued by financial institutions such as banks, building societies, insurance companies etc.
Denotes debt instruments [securities] that pay a fixed interest rate (e.g. bond, commercial paper). Also, a universal term for bond or debt investing.
A bond with a variable interest rate. The interest rate is variable as it is tied to a benchmark such as LIBOR (London Interbank Offered Rate).
When units in a fund are bought or sold, the price is fixed at the next valuation point.
A stock market that is typically smaller and less-developed compared to ’emerging’ markets.
A form of collective investment where investors’ money is pooled and invested in a variety of securities.
The total value of assets held within a fund.
The qualitative and quantitative information that contributes to the economic well-being and the subsequent financial valuation of a company, security or currency.
An exchange traded contract between two parties to buy or sell a commodity or a financial instrument at a pre-determined price at a future date.
Growth at a Reasonable Price. An investment strategy that combines the principles of growth investing and value investing to find individual shares.
For some investment trusts, e.g. split capital trusts, different share classes capture different returns so some are more sensitive to market movements, meaning they are “geared”.
Gearing: measures a company’s borrowings (debt) as a proportion of assets. See Leverage.
Bonds issued by the UK government.
Bonds issued by governments.
The percentage value of the long positions plus the percentage value of the short positions.
Dividends and interest paid out before income tax is deducted.
An investment style that focuses on companies with the potential to grow their earnings significantly over time. Such companies typically reinvest earnings into the business to fund future expansion.
An investment designed to reduce the risk of adverse price movements in an asset by taking an offsetting position. Derivatives are usually used as hedging tools.
The highest level that a fund’s net asset value (NAV) has reached at the end of any 12-month accounting period.
A bond with a high coupon payment (interest payment) and typically a low/no credit rating (below investment grade, e.g. BBB-).
A calculation of the income return on an investment relative to its current price.
The amount a fund has invested in a security or the amount of units/shares an investor owns.
The minimum level of return required before a fund can charge a performance fee.
I Class Shares are typically offered to institutional investors and have high minimum investment requirements. Third party investment platforms such as fund supermarkets may provide access to this share class with lower minimum investment limits.
The Investment Association (or IA) classifies all of the funds on sale in the UK into a broad range of groups or ‘sectors’.
An investment approach that seeks investments that pay a regular income, for example in the form of dividends, by selecting stocks judged capable of delivering sustainable growth in dividends over the long term.
Units of a fund in which any interest earned or dividends paid are distributed to the investors.
An index is an collection of shares or bonds that represents a particular part of the investment market (for example, the largest companies listed in the UK, or financial companies listed in any developed market).
A wrapper in which you can place your savings and investments to protect them from some forms of taxation.
Increase in prices of goods and services over time.
The charge payable by investors on the purchase of units in a fund. This charge covers expenses like administration and dealing costs.
A unique code identifying a fund or security.
Investment grade refers to the quality of a company’s credit. In order to be considered an investment grade issue, the company must be rated at ‘BBB’ or higher by Standard and Poor’s or Moody’s (two large credit rating agencies).
A closed-ended vehicle (i.e. with a fixed number of shares) which invests in a diversified portfolio of assets. Investors buy and sell their shares in the investment trust on a stock exchange.
A document that includes important information about a fund, including risk factors and details of charges.
Refers to stocks issued by companies with a large market capitalisation, generally the bigger companies within a given market. Definitions based on market cap value can vary.
The date on which a Unit Trust starts investing in assets and is introduced to the marketplace.
The use of financial instruments (e.g. debt) to increase the potential return of an investment.
An interest rate used to determine the level at which banks can borrow from other banks in the London interbank market.
Measures how easily an asset or security can be converted into cash.
Buying a security with the expectation that it will deliver a positive return if its value goes up or a negative return if its value falls.
This figure is used to determine a company’s size. It is calculated by multiplying the number of a company’s shares by the current market price per share. Companies are generally classified as large, mid or small cap.
Refers to a finite time period at the end of which a security/debt instrument is due to be repaid.
Stocks issued by companies with a medium-sized market capitalisation, generally those companies that occupy the middle ground between large and small-cap. Definitions based on market cap value can vary.
The mid point between the ask and bid prices. It is often used for the valuation of the securities within an investment company’s portfolio.
The minimum amount of money that will be accepted when investing in a specific security or fund.
Modified duration estimates the effect that a 1% change in interest rates will have on the price of a bond or bond fund.
Markets in which short-term (less than one year) debt instruments are traded. Money market instruments are typically cash deposits and commercial papers.
A fund that invests in a number of other funds.
Term for a collective investment scheme, typically used in the USA.
In relation to a fund, the market value of its assets less its liabilities. The market value is usually determined by the price at which an investor can redeem shares.
The percentage value of the long positions less the percentage value of the short positions.
A company’s net profits, calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses.
The amount an investor should receive if they hold a security to its maturity date minus taxes and other expenses.
Bonds that are not rated.
Commonly used in relation to a derivative, denotes the theoretical value of its underlying asset.
Non-UCITS Retail Schemes (NURS) are UK funds that do not comply with all the UCITS rules and, therefore, cannot be promoted across the EU. They can, however, be sold to UK retail investors. NURS can invest in a wider range of eligible investments than UCITS.
The total ongoing charges deducted from the assets of a fund, which includes the annual management fee charged by the investment manager.
A fund whose number of units can be increased or decreased according to demand. Unit trusts and OEICs are examples of open-ended funds.
Open-ended Investment Company (OEIC): a fund vehicle, which can issue a limitless number of shares whose value is directly linked to the value of its underlying investments. OEICs normally list a single price based on the NAV. See Net Asset Value.
A type of share issued by a split capital investment company which aims to offer both a higher level of income and the prospect of capital growth. Also known as highly geared ordinary shares or income and residual capital shares. Unlike an income share, they do not aim to pay a fixed sum on wind up and may also not have a fixed life.
A share which represents equity ownership in a company and represents full voting rights and dividend entitlements if they are available.
A trade in financial instruments between two parties which does not make use of the facilities of recognised exchange.
When a portfolio or fund holds a particular asset in excess of its representation within a comparable index or benchmark it is said to be ‘overweight’. Active fund managers use this strategy where they believe these assets could generate superior returns.
An investment strategy that aims to match the performance of a stock market index through tracking its progress by buying and selling shares in the same proportions as the index. These funds are also known as tracker funds or index (tracker) funds.
The date on which a dividend is paid to shareholders / unitholders.
One who accepts payments from the issuer of a security and then distributes the payments to the holders of the security. For example, in the case of shares, a paying agent receives dividend payments which are then distributed to shareholders. In bonds, the paying agent receives interest payments (i.e. coupon) which it then distributes to bondholders.
The results of an investment over a given period of time.
A fee paid to an asset manager for generating positive returns above an agreed target.
A collection of investments held by an institution or an individual.
Shares with dividends that are paid to shareholders before ordinary share dividends are paid out. In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first. Preference shares typically pay a fixed dividend, whereas ordinary shares do not. And unlike ordinary shareholders, preference share shareholders usually do not have voting rights.
The amount, expressed as a percentage, by which the share price is more than the net asset value per share.
It is calculated by dividing the market value per share by the earnings per share.
A discloser document specified by the Hong Kong Securities and Futures Commission. A KFS gives a prospective investor a concise and user friendly summary, in plain language, of the key features and risks of a product.
A legal document giving full details of a fund so investors can make an informed investment decision.
A way of ranking funds that breaks the peer group into four groups. For example, funds in the first quartile are among the top 25% in their peer group.
The date from which the life of an investment trust is extended for a new fixed period.
Shares which have fallen in value but are thought capable of returning to their former price.
When a company reaches the end of its agreed life and shares are redeemable.
The repayment date/maturity date for bonds and other fixed interest securities.
A term used to differentiate investments from each other by way of country, market or prime source of business.
The proportions of a fund held in industry sectors.
A term used to describe a number of financial instruments; stocks, shares and bonds for instance.
A code, comprised of seven alphanumeric characters, assigned to many securities as a unique identifier.
Funds that are typically managed on behalf of a single large client.
A unit of ownership interest in a company or financial asset. Also known as equity.
A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted performance.
A short position involves selling a borrowed security with the expectation of buying it back at a lower price to make a profit. However, if the security goes up in value, a short position will make a loss.
Short selling involves the sale of an asset that has been borrowed from a third party with the intention of buying the asset at a lower price at a later date. It is a way of making a profit when the price of a security falls.
A type of open-ended fund widely used in Europe.
A single-priced fund is one where you pay the same price whether you’re buying or selling units/shares in the fund.
Investment in companies that may provide solutions to environmental and social issues.
A type of investment company which issues more than one class of share with different entitlements to income and capital.
The difference between the bid and the ask price of a single security. It can also refer to the difference in price between two securities.
Synthetic Risk and Reward Indicators. A way of broadly categorising investments based on their risk. It is measured on a scale of 1 to 7, with 1 being the lowest risk and 7 being the highest risk.
The process by which a manager selects favoured stocks or shares for a portfolio.
A contractual agreement between two parties to exchange future cash flows (or profit/ loss) resulting from two different assets according to a pre-arranged formula. Swaps can be contracted for stocks and shares, currencies and commodities. For example one party may contract to exchange the future profit or loss from an equity share in return for the interest on a cash balance of equivalent value.
An investment approach where the fund manager bases investment decisions primarily on their view of the general economic outlook for the particular sector, country or region in which they invest. Securities that the manager believes are likely to benefit such an environment are then selected for the portfolio.
The total assets of an investment company determined in accordance with its accounting policies. Total assets generally include the amount of fixed long-term bank debt, but exclude current liabilities such as running costs.
The capital gain or loss plus any income generated by an investment over a given period.
A trustee oversees the fund manager’s activities and must be independent of the fund manager. It acts in the interests of the unitholders and looks after the assets on their behalf, ensuring the fund is invested according to its investment objectives and that the fund manager is complying with regulations.
Undertakings for The Collective Investment Of Transferable Securities. These funds can be marketed within all countries that are a part of the European Union, provided that the fund and fund managers are registered within the country. The regulation recognises that each country within the European Union may differ on their specific disclosure requirements.
When a portfolio or fund holds less of particular asset than its comparable index or benchmark it is said to be ‘underweight’. Active fund managers use this strategy where they believe excluding these assets could generate superior returns.
Some funds offer different types of units that might, for example, treat any income arising from the portfolio differently, or might have differing levels of charges.
Unit Trust: A fund vehicle which can issue a limitless number of units whose value is directly linked to the value of its underlying investments. Jupiter Unit Trusts are single priced, which means they have one price for buying and selling.
A mathematical way of measuring the maximum expected loss of an investment over a period of time.
Measures how much the price of a security moves up or down over a period of time. A stock that experiences big price swings has high volatility, while one which moves up or down in smaller increments has lower volatility.
Refers to the overall delta of a collection of derivatives based on the delta of each individual derivative and their respective “weight” or size in the collection as a whole.
The average duration of a fund, with each bond within the portfolio being weighted according to its size.
The proportion of the total portfolio represented by an investment in a security or sector.
The date on which a company expects to wind up.
The rate of interest or income on an investment, usually expressed as a percentage.
The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate.
A type of share issued by a split capital investment trust which aims to deliver a fixed amount of capital growth over a set period of time. This amount isn’t guaranteed. ZDPs do not pay any income.