Absolute return is the return that a fund or asset achieves over a certain period of time. This measure looks at appreciation or depreciation, expressed as a percentage.
The percentage of the holdings in a portfolio which are not included as components of the portfolio's benchmark.
Alpha is defined as the return on a fund or asset in excess of the required rate of return. Alpha is most commonly used as the term to represent the excess return of a fund relative to its benchmark (see Benchmark).
This term describes investments which do not typically fall into the traditional asset classes. Real estate and commodities are examples of alternatives. See Real estate, Commodities.
Annual management charge (AMC)
The annual charge levied on investors in a fund to meet the costs involved in managing the fund. Usually the AMC is quoted as a percentage of the value of the fund.
An asset class is a group of investments that have similar financial characteristics. Traditional asset classes include cash, equity securities (shares or stocks) and fixed-income securities (bonds). See Equity securities, Fixed-income securities.
Asset maturity refers to the date at which, either a financial transaction or a financial product, comes to the end of its life. At this stage, an investor normally has the option to either allow the transaction or product to end or to renew their investment/contract.
Average unexpired lease length
With commercial real estate, the landlord offers the tenant a lease extending for a number of years. The unexpired lease length is the period of time remaining before the lease expires and has to be renewed. Within a portfolio of real estate assets, this figure would refer to the average length of unexpired leases aggregated across the whole of the portfolio.
This figure is important because if the average unexpired lease length for a portfolio is relatively short, this may indicate higher risk for investors within the portfolio. If a large number of leases are due to expire within a short period, the fund is dependent on being able to renew or replace these tenancies in order to maintain the income stream, i.e. rents received, within the portfolio. A longer average unexpired lease length is likely to offer a more secure and dependable stream of income within the portfolio.
Average value of directly-held assets
These are actual assets held by a fund directly, e.g. shares in a company or the freehold in a property such as an office building.
Funds may invest in assets around the world with the market value of individual investments primarily quoted in the relevant local currency. If, however, the fund is e.g. registered in the UK, the value of these global assets will be converted into the funds local / base currency, in this case, sterling.
Investors often seek a measure in order to determine whether their investment fund, security or manager, is performing well or badly. The benchmark is a measure, often an index, against which they can judge relative performance.
Beta is a measure of the volatility of an asset to movements in the overall market index within which it is contained. The beta of a fund is a measure of its volatility relative to its benchmark. See Benchmark, Index, Volatility.
A common name for fixed-income securities. See Fixed-income securities.
The amount of return an investor realises on a fixed-income security. See Fixed-income securities.
This is the difference between the buying and selling price of a security. With many securities, e.g. shares in a company, there are two different prices quoted – a price an investor would be asked to pay in order to buy shares, and a slightly different price the investors would receive if they already held shares in the company and wanted to sell.
The purchaser of the shares would pay a slightly higher price than that received by the seller of the same shares. The reason for the difference is that a market needs to operate in order to allow investors to both buy and sell the same shares. The difference in the two prices is the profit the ‘market makers’ receive in order to enable this trade to happen.
A term commonly used to define natural resources and agricultural assets such as gold, crude oil and corn.
Composition by fund exposure
This refers to the mix of assets within a portfolio categorised by e.g. geography, industrial/commercial sector, size or currency exposure.
Composition by maturity
See Asset maturity.
An assessment of a borrower’s ability to pay back a loan or debt. Credit ratings are normally applied to fixed-income securities (see Fixed-income securities) and range from highest (least likely to default) to lowest (most likely to default). See Default.
Current historic yield
If an investment pays an income, that income is often expressed as the 'yield' on the investment. The historic yield is the last income paid, e.g. the dividend paid on a company share, quoted as a percentage of that investments’ current market price.
Failure to meet the legal obligations of a loan. For example, when the issuer of a fixed-income security fails to pay the promised interest or the principal when due, the issuer has defaulted or is said to be in default.
Derivatives are financial instruments whose value depends in some way on the value of other, more basic, underlying financial assets or indices. There are many types of derivatives, with the most common being futures, options and swaps. See Index, Futures, Options, Swaps. They allow users to manage exposure to underlying financial assets without actually owning them.
Direct asset holdings
See Average value of directly-held assets.
A term used to describe the broadening of investments to reduce an over reliance on particular assets or risks.
A dividend is a payment made by a company to its equity security holders usually as a distribution of profits. A dividend is an example of an income payment. See Equity securities.
Dividend paid dates
The dates throughout the year when a company distributes dividend payments to its shareholders.
The dividend yield is a measure of the dividend per equity security divided by the price of each equity security. See Dividend, Equity security.
The location at which a company or fund is based for accounting and legal purposes is referred to as its domicile.
Duration is a way of measuring how much fixed-income security prices are likely to change if and when interest rates move. Securities with high duration are more sensitive than those with low duration. Fixed-income security duration, measured in years, is the length of time it takes to wait for the amount an investor paid for the security to be repaid.
When we describe the mix of assets in which a fund invests, 'emphasis' means at least 60% of the value of the fund.
Equity, stocks or shares (used interchangeably) represent a proportion of the ownership of a company. A particular company's shares may be privately-held, i.e. not openly available for investors to buy, or they may be listed on a stock exchange anywhere in the world. This listing generally means that buying and selling the shares is relatively easy and quick.
Shareholders are entitled to a share of the net assets and profits of the firm in proportion to their holding. Equity has no fixed life, pays no fixed dividend and its price rises or falls depending on supply and demand, and overall market conditions.
Listed equities are usually clustered into groups, such as by geography, e.g. UK equities or US equities, or by the nature of the underlying business, e.g. industrials, retailers, etc. They may also be classified according to the stock exchange on which the shares are listed/dealt, e.g. New York.
Instruments that signify an ownership position in a company and are commonly called stocks or shares.
Emerging markets are those in countries that are less economically developed.
This means frequently, regularly, or to a large degree.
Instruments that signify a loan made by an investor and are commonly called bonds. Fixed-income securities are issued by sponsoring entities which may include companies, institutions and governments. They are normally issued with defined regular income payments, or coupons, and a date at which the principal of the loan will be repaid.
The exchange of one currency for another, or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around-the-clock.
A type of derivative instrument. A future is a contract giving the owner the right to buy or sell an underlying asset at a specified future date and at a specified price.
When we describe the mix of assets in which a fund invests, 'generally' means at least 60% of the value of the fund.
A hedge is a strategy intended to protect against loss by buying assets or securities whose prices are expected to move in the opposite direction to those of the assets being held.
These are investment categories, e.g. UK Gilts, Japan Smaller Companies, Absolute Return, as defined by the UK Investment Association (IA).
An index is an indicator of trends in the market or economy that they represent. For example, a stock market index is a measurement of the value of that stock market.
This is the price movement of an index. It is often used as a measure of risk.
The rate at which prices are rising over time.
Investment grade/Non-investment grade
A level of credit rating (see Credit rating) that indicates that a fixed-income security has a relatively lower/higher risk of default. See Default.
The International Securities Identification Numbers (ISIN) are codes used to identify individual securities.
Regular, fixed (sometimes inflation-linked) payments made by fixed-income security issuers to holders, or, by institutions with whom cash is deposited to those depositors.
Lease expiry/break profile
Within commercial real estate, leases are offered to tenants for a fixed period of time. The end of the lease is referred to the lease expiry date. Within the period of a lease often, either or both, landlord and tenant have the right to terminate, i.e. 'break', the lease at particular stages before the lease expires.
This refers to techniques available with the intention to greatly increase the size of expected profits. An example of leverage would be where an investor chooses to borrow money to invest. These funds would be used to make investments where the expectation is that the returns will be greater than the borrowing cost. However, leverage works in both directions and if an investment is unprofitable, the size of any losses would also be multiplied.
Liquidity refers to the ease with which investors are able to buy and sell their assets and convert them into cash.
A macro environment is the condition that exists in the economy as a whole, rather than in a particular sector, region, industry or company (the micro level). The macro environment is closely-linked to the general business cycle as opposed to the performance of an individual business sector.
When we describe the mix of assets in which a fund invests, 'mainly' means as least 50% of the value of the fund.
The total market value of all of a company's outstanding shares. Market capitalisation is calculated by multiplying the number of a company's shares by the current market price of one share.
This is a measure of the sensitivity of fixed income prices to small changes in the yield of the bond.
Net (in the context of performance data)
Performance data calculated after any deductions, i.e. costs, tax etc.
Net asset value (NAV)
The NAV is the value of the assets held within a fund. With a unit trust or an open-ended investment company (OEIC), the NAV per share is calculated as the fund´s market price less sales or exit fees.
This is the degree of leverage within a portfolio expressed as a percentage. It is calculated as follows: total borrowings less cash and near cash, divided by shareholders' funds, and expressed as a percentage.
A type of derivative instrument. An option is a contract giving the owner the right, but not the obligation, to buy or sell a specified amount of an underlying asset at a specified price within a specified time.
Pooled pension funds
Pooled pension funds are investment portfolios where large numbers of investors can cumulatively invest their pension contributions into a single fund.
See Net gearing
When we describe the mix of assets in which a fund invests, 'predominantly' means at least 80% of the fund.
When we describe the mix of assets in which a fund invests, 'primarily' means at least 70% of the fund.
When we describe the mix of assets in which a fund invests, 'principally' means at least 80% of the fund.
Private equity is money invested in companies not publicly traded on a stock exchange. Private equity is a form of alternative investment.
Real estate refers to physical property, including land and the buildings on it.
Real estate investment trusts (REITs)
REITs are a type of company listed on a stock market, which owns and manages real estate. See real estate.
Stock Exchange Daily Official List (SEDOL)
SEDOL is a European security identifier number provided to identify individual securities on stock exchanges.
Shares in issue
The current number of shares in a company which have been issued.
This is a measure of a fund's risk-adjusted price performance. It seeks to measure the degree of return investors can expect from their fund relative to the extent of risk undertaken. It is calculated by dividing using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund's historical risk-adjusted performance.
Sociétés d'investissement à Capital Variable (SICAV)
SICAV is an open-ended investment fund.
When we describe the mix of assets in which a fund invests, 'significantly' means at least 80% of the fund.
A type of derivative instrument. A swap is an agreement between two parties to exchange assets. Most swap contracts involve an agreement to exchange a series of future cash flows based on those assets.
Total net assets
The assets held within an investment portfolio less its liabilities.
Tracking error indicates how much variability there exists between individual measurements that make up the difference in return between a fund and the index against which is it benchmarked. See Index, Benchmark.
Underlying market exposure
The exposure of a fund to its holdings in, e.g., individual sectors, countries or types of investments. It is useful as it allows an investor to understand the likely impact on the performance of their fund with any sharp movement in the value of these particular categorisations.
Underweight/Overweight refers to a situation where a fund holds less/more of a particular asset or security when compared to the index against which it is benchmarked. See Index, Benchmark.
Value at Risk (VaR)
VaR is a measurement of the financial risk within an investment, measured over a period of time.
Volatility is a statistical measurement of the extent to which an asset, fund or index's price fluctuates. Volatility is often used as a measurement of risk. See Index.
The income return on an asset such as the income or dividend received from holding a particular security. It is usually expressed as a percentage rate based on that security's cost or current value. See Dividend yield, Bond yield.