Shares in mainland Chinese companies listed on the stock exchanges of Shanghai and Shenzhen. A-Shares are generally only available for purchase by mainland Chinese citizens, with foreign investment only allowed through the tightly regulated Qualified Foreign Institutional Investor Scheme (QFll). See also QFll.

Absolute return

An approach to investing designed to deliver positive investment performance regardless of the investment environment.

Accum or accumulating

Instead of income derived from the fund’s shares being paid to investors as dividends, this income is re-invested within the fund to buy further shares.


The purchase of one company by another. This is often undertaken as a means of increasing sales, enabling economies of scale, or to eliminate a competitor.

Active managers

Investment managers who aim to outperform a particular benchmark or index by monitoring the market and making decisions about which investments to buy or sell.

Active members

Members of a pension scheme who are working employees of the company and are continuing to build up pension benefit in the scheme.

Actuarial valuation

An assessment of a company's defined benefit pension scheme to see whether the current investment strategy can meet future pension payments to members. This is an important process because a defined benefit scheme relies on contributions from the company and investment returns to pay the members of the scheme. It is usually carried out every three years by an actuary.


A professional expert on statistical analysis who calculates risks for insurance companies or pension funds. Actuaries generally focus on the impact of probabilities like life expectancy and the risk of death and probabilities on an institutional client's assets and liabilities;


Buying or selling by stockbrokers on the investor's behalf and at the investor’s risk.

Agreed bid

A bid to buy a target company which is made with the full knowledge and consent of the company’s board.

All-Gilt index

An index composed entirely of UK government bonds.


A measure of risk-adjusted returns over and above those provided by the market.

Alternative investments

Asset classes other than bonds, equities and cash. See also commodities, hedge funds, infrastructure, private equity.

Annualised return

The average return over a one year period calculated from returns over a lesser or greater period. Used as a means of direct comparison.


Something owned which has value in an exchange, such as an investment, a debt, a right, property or money in the bank.

Asset allocation

The act of deciding which categories of assets and in what proportions the "investment" should be assigned to at any given time to yield the most attractive returns. As an investment strategy it aims to balance risk and reward according to goals, risk tolerance and investment horizon.

Asset categories

Types of assets, such as equities, gilts, corporate bonds or cash.

Asset distribution

The choice of categories of assets and in what proportions an investment should be assigned to them at any given time to yield the most attractive returns. See asset allocation.

Asset value

The net market value of a company’s assets per share.

Average Weighted Coupon

Figure derived by weighting the coupon of each bond by its relative size in the portfolio


Used to describe a fund which maintains holdings in specific stated proportions.


A transaction to buy or sell shares. It does not imply a favourable deal.

Base rate

The benchmark minimum interest rate banks use to work out lending rates to their customers. The UK base rate is set by the Monetary Policy Committee of the Bank of England.

Basis point

The smallest measure used for quoting changes in interest rates and bond yields, equivalent to one hundredth of a percentage point. For example, a rise in a bond yield from 5.00% to 5.60% would usually be described as an increase of 60 basis points.


Characteristic of falling prices or declining economic conditions.


A standard against which performance is measured or judged. A benchmark allows you to compare how the value of a security has changed over time relative to the rest of the market. It can also act as a guide or objective for the performance of an investment.

Benchmark risk

The risk that the benchmark for a fund is not an appropriate one for meeting future liabilities.

Best execution

The rule requiring brokers to buy or sell an investment at the best price available in the market at a specific time.


A measure of an assets risk or volatility when compared against a benchmark. The market is given a beta of 1.0, so a stock with a beta of 1.1 is considered more volatile than the market while a stock with a beta of 0.9 is seen as less volatile.


The price a purchaser is willing to pay for a security. Also an offer made to purchase a security, stipulating both the price and the quantity.

Bid-offer spread

The difference between the buying and selling price of a security. The price quoted in newspapers and shown on valuations is the mid-point between these, or mid-price.


An investment style that combines investment in both ‘value’ and ‘growth’ stocks. See also growth investing and value investing.

Bloomberg ticker

A string of characters or numbers to identify a listed company or entity on financial services news services.

Bond/equity yield ratio

The ratio between the yield on bonds and dividend yield on equities. A high figure would imply that equities are looking expensive relative to bonds. See also yield ratio.


A fixed-income debt investment where an investor lends money to a government or company (the ‘bond issuer’), who is then obliged to pay a specified amount back to the purchaser of the bond on a given future date. The amount to be repaid usually includes the original amount (the principal) plus interest (coupons).


A period of strong economic growth. Usually associated with a bull market.

Bottom up

An approach to investment selection based on analysing the profitability, cash flow, earnings and pricing power of companies to determine their attractiveness as investments.

Budget deficit

A financial situation in which expenditure exceeds revenue. Usually used to refer to government spending being higher than tax revenues.


Characteristic of rising prices or improving economic conditions.


The German word for bond, used to describe bonds issued by Germany’s federal government, which are usually long term bonds in 10 or 30 year durations.


A period of rapid decrease in economic growth. Usually associated with a bear market.


A general term for financial resources such as cash which are available to be used to generate wealth.


Combined Actuarial Performance Services. A UK company that monitors the performance of pension funds and charities.

CAPS pooled median

The median performance of the funds in a representative sample monitored by CAPS.


Coins and currency on hand and in checking account balances which can be directly exchanged for goods and services. Also the value of assets such as bank accounts and marketable securities which can be immediately converted into cash, as reported by a company.


An important factor to be considered when working out how the performance has been achieved. It includes the effect of the timing of cash flows into and out of the fund.


Technical analysis of investments based on the idea that stock prices follow set trends and patterns over time.

Chinese wall

The deliberately imposed absence of communication between arms, departments or teams of a banking business to avoid sharing of confidential, price-sensitive information. The aim is to ensure that everybody works in the best interest of their clients without breaking any insider-dealing rules.

Citywire rating

Provides a rating of individual fund manager performance, rather than rating funds. Fewer than 25% of managers tracked qualify for a Citywire Fund.

Closet indexing

The linking of an apparently active portfolio to an index by the fund manager, so that the fund's performance tracks the benchmark. This is usually done covertly and is intended to reduce risk.


Close of business.


Different clients’ assets are pooled together and managed as a single entity to reduce cost and lower risk by investing in a wide spread of investments.


Any raw goods which can be exchanged during commerce, either by being bought directly or traded on a commodities exchange. ‘Hard’ commodities such as oil, coal or metals are extracted or mined from the ground; ‘soft’ commodities such as cattle and crops are farmed or grown. Commodity investing usually involves buying and selling futures rather than investing in the underlying products. See also ‘Futures’.

Contract note

Written confirmation of an investment transaction.

Contribution holidays

A break in payment of contributions to a defined benefit pension fund, made possible when it is in surplus.

Conventional gilts

Standard UK government bonds that offer a fixed rate of interest over the life of the bond. They are not index-linked. See also ‘Index-linked’.

Corporate financiers

Investment professionals who advise companies on mergers, acquisitions, flotations and raising money.

Corporate governance

The rules, practices and processes which determine how an organisation is directed and controlled and how the different stakeholders relate to each other. Good governance is considered vital for sustainable growth.

Cost push inflation

A rise in prices caused by an increase in the cost of wages and raw materials.

Costs of dealing

Overall costs of buying or selling once commission, spreads (the difference between the buying and selling price) and stamp duty are taken into account.

Counterparty risk

The risk to either party of a contract that the other party will not be able to meet its contractual obligations.


The rate of interest paid on a bond, which is expressed as a percentage of the nominal or face value. Coupons are typically paid semi-annually. The coupon on a fund level is the weighted average of all of the coupons on the underlying investments.


Consumer Prices Index. A measure of the rate of change in the prices of goods and services, including food, gas and electricity. The CPI is a key measure of inflation used by the Bank of England when considering interest rate changes.


A sudden and significant decline in stock market prices. Crashes can be caused by inflated values, a highly-leveraged market where debt is used to finance further investment or simply irrational pessimism and crowd behaviour by investors causing a crisis of confidence.


An asset class that focuses on investment in instruments that allow entities (such as corporations and governments) to borrow money in order to fund activities. Interest is paid by the borrower to the lender in instalments (known as ‘coupon payments’) throughout the term of the loan and the loan is expected to be repaid at a defined date in the future. Borrowers receive a ‘credit rating’ that indicates how risky the loan is likely to be and how likely it is that the borrower will fail to make repayments. More risky borrowers will be expected to pay a higher interest rate to compensate the borrower for the risk.

Credit Default Swap (CDS)

CDS is an insurance contracted by two parties on one underlying issuer facing a risk of default. CDS long risk represents an investment purchased to make a profit from the price of the underlying investment rising. CDS short risk represents an investment purchased to make a profit from the price of the underlying investment falling. CDS Index is an index containing multiple CDS’s.

Credit Exposure

The total amount of credit extended to a borrower by a lender and the maximum value that will be lost if the counterparty defaults on the loan.

Credit rating

A formal evaluation of a borrower’s credit history and likely capability to meet financial obligations in a timely manner. See also investment grade, sub-investment grade, ratings agency.

Credit risk

The risk of the principal or interest on a loan or bond not being repaid in a timely manner.

Credit Spread

The yield spread, or difference in yield between different securities, due to different credit quality.


An electronic share-dealing settlement and registration system for the UK and Irish markets which removes the need for paper share certificates.

Currency risk

The risk of having assets or liabilities in another country's currency which may be affected by strength or weakness in that currency relative to sterling.

Current yield

A measure of the performance of a security calculated by dividing the annual income in terms of interest or dividends by its current market price. Also known as the running yield.


A third party company that is responsible for keeping clients' assets safe, settling trades, and dealing with corporate actions such as rights issues.

Customer agreement

A document that sets out the basis of the service to be provided between investment managers and their clients.


Relating to an economic cycle: typically used in finance to refer to a stock or sector which is particularly sensitive to the condition of the economy.


The decrease or breakdown of an expected correlation between two asset classes. An example is the relationship between bonds and equities, which tends to move within certain parameters but occasionally deviates from this.

Dealing net

Buying or selling shares by a market-maker for an investor with the price including fees quoted for an agreed number of shares.


A bond issued by a company, secured against the company assets.

Debt/equity ratio

A financial ratio that shows total debts, divided by shareholders' equity for a company. The higher the debt/equity ratio, the more sensitive profits are likely to be to changes in interest rates and economic conditions.


Used to describe companies or stocks which are less volatile than the market as a whole, remaining relatively stable throughout the economic cycle. This means that on average they perform better than the market in a downturn, but worse in a period of market growth.

Deferred pensioner

An employee who, based on their service, is entitled to a pension at a future date, either because they left the company before retirement age (early leaver) or because they are still working beyond retirement age.


The amount by which expenditure is greater than income.

Demand pull inflation

A rise in the price of a good or a service, because of the increased demand for it.


The process of moving from using paper documents like share certificates to electronic transactions handling.

Derate (also ‘de-rate’)

To lower the rating of a company's share price.


A security, such as an option or future, whose value is derived from the performance of an underlying security.

Development capital

Finance provided by merchant banks and/or venture capitalists to fund a company's start­ up or expansion.

Deviation constraints

The limits within which investment managers must remain when choosing the types of asset to buy for a fund. Also called divergence limits.


A reduction in the percentage of a company owned by existing shareholders because the company issues extra stock, or because holders of stock options exercise their rights to shares. This will result in a reduction in share value if profits have not risen to compensate.


Securities trading at a lower price than normal to attract buyers or sellers. Also used to mean that an anticipated event in the future is already reflected in a security's price. See also discounting.


Anticipating future changes and allowing for them in today's price.


Used to describe a situation whereby a client allows their investment manager to buy and sell without their direct consent. The client signs a disclosure which may include guidelines regarding trading in the account, such as their risk appetite and asset classes or types they do or do not wish to trade in.

Dist or Distributing

Income derived from the funds shares being paid to investors as dividends

Distribution yield

A measure of the amounts that may be expected to be distributed over the next twelve months, expressed as a percentage of the mid-market unit price of the fund on a given date and based on a snapshot of the portfolio on that day. It does not include any preliminary charge and investors may be subject to tax on distributions.

Divergence limits

The limits within which investment managers must remain when choosing the types of asset to buy for a fund. Also called deviation constraints.

Diversification of risk

Investing in a wide spread of asset classes in an attempt to lower overall risk.

Dividend cover

The earnings which could potentially be distributed to shareholders, divided by the actual dividend paid. Used as a measure of a company’s ability to maintain current levels of dividend.

Dividend growth

The rate of increase in the earnings distributed to shareholders from one year to the next.

Dividend payout

The total amount of earnings distributed to shareholders. A company may choose to distribute all profits as dividends or retain a proportion of earnings to grow the business.

Dividend yield

The ratio of the dividend provided by a share divided by its market price.

Domestic demand

The demand for goods and services within the country where they are produced.


Goods which are not immediately consumed in use and whose benefit is experienced over a period of time, such as household appliances. The opposite of perishables, or disposable goods.


A measure of the price of a fixed-interest investment to interest rate changes, expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean they rise. First defined by Frederick Macaulay and sometimes referred to as Macaulay's duration.

Duration Times Spread (DTS)

DTS equals credit spread multiplied by duration. This is a volatility measure of spread duration.

Early cycle

Used to describe a market or company which is affected early in the first stages of an economic cycle it is subject to.

Earnings momentum

The direction, strength and rate of change of the growth in earnings per share.

Earnings per share (EPS)

Total profits of a company after tax divided by the number of ordinary shares issued.

Earnings-driven phase

Period of time during which strong company profits are the main reason for the price of its stock.

Economic cycle

The pattern of rise and fall in economic activity over a period of time.

Effective yield

A measure for debt securities (bonds) that takes into account any discount or premium between the purchase price of a bond and its original issue price. Any such premium or discount should be amortised, or written off, evenly over the remaining life of the bond.

Efficient market

A notional market where all past and future information is available to all participants at the same time and is therefore reflected immediately in the share price.

Emerging markets

Used to describe stock markets in newly industrialised countries (NICs) or developing countries. Such markets often experience high growth but involve greater risk due to potential issues with political instability, currency volatility, infrastructure problems and regulation.


Total profits of a company after tax divided by the number of ordinary shares issued.


Ordinary shares in a company, which normally give their holders voting rights.

Equity risk premium

The additional return expected from a volatile asset which is considered to compensate for the extra risk involved.

European Exchange Rate Mechanism (ERM)

A formal measure entered into by members of the European Union prior to monetary union fixing the exchange rates between their currencies against each other within a narrowly defined band.


A measure of corporate profitability worked out by taking a company's enterprise value or EV, calculated as equity plus debt, and dividing this by its earnings before interest, tax, losses and write-offs. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization.

Exchange rate policy

The actions taken by a government to attempt to control the price for which its currency can be exchanged for that of another country.

Exchange-traded commodity (ETC)

An investment vehicle which tracks individual commodities or commodity indices such as those for gold or wheat and seeks to reflect their performance. ETCs can be traded like shares at the current market price on major stock exchanges globally at any time during the trading day.

Exchange-traded fund (ETF)

An investment vehicle which tracks one of a range of sectors or indices, for example the FTSE All-Share Index, seeking to reflect its performance. Traded like shares on major stock exchanges across the world, they can be bought or sold any time during the trading day at the market price.

FE Crown Fund Rating

Ratings are compiled using three key measurements of a fund’s performance. A five FE Crown Fund Rating reflects the highest tier.

Federal Reserve Board

The board that governs the Federal Reserve System and banking system of the US.

Financial Conduct Authority (FCA)

A body which along with the Prudential Regulation Authority (PRA) regulates the financial services industry in the UK. The FCA and PRA superseded the Financial Services Authority on 1 April 2013.

Fiscal deficit

A financial situation in which government spending exceeds tax revenues.

Fiscal policy

Government actions which use tax and public spending in an attempt to influence major factors in the economy , such as inflation, unemployment, overall demand and the balance of trade.

Fixed interest

Used to describe a security that pays a predetermined amount of interest over a given period. See also bond.


To formally offer shares in a company for sale to the public for the first time, generally through an Initial Public Offering or ‘IPO’.


The activity of formally offering shares in a company for the public to purchase for the first time.

Fluctuation bands

The upper and lower limits of the range in which sterling could trade against the currencies of the other countries in the now defunct European Exchange Rate Mechanism.


A type of derivative which constitutes a private agreement to buy or sell a specific asset at a fixed price on a fixed date in the future.

Frontier markets

A term used to describe less developed economies, usually defined by those countries included in the MSCI Frontier Markets Index.

FTSE 100 Index

A share index of the 100 largest companies listed on the London Stock Exchange in terms of market capitalisation. FTSE stands for Financial Times Stock Exchange.

FTSE 250 Index

An index containing the 101st to 350th largest companies listed on the London Stock Exchange in terms of market capitalisation. FTSE stands for Financial Times Stock Exchange.

FTSE All-Share Index

A broad UK stock-exchange index (covering around 800 companies) prepared by the Financial Times together with the Faculty and Institute of Actuaries and the London Stock Exchange.

FTSE Small Cap Index

An index consisting of those companies in the FT All Share Index not included in the FTSE 100 or the FTSE 250. FTSE stands for Financial Times Stock Exchange.

Fundamental analysis

A method of evaluating a security which attempts to examine all influencing factors, whether company-specific or market or sector-related, as a means of determining whether to buy or sell.

Funding deficit

The shortfall between a pension fund's projected liabilities and its assets.


A contract to buy or sell a specific asset at a fixed price on a fixed date in the future which can be traded on an exchange. A future is a type of derivative.


Growth At a Reasonable Price. An investment style that focuses on stocks with the potential to deliver high returns over the long-term. A more flexible approach than either growth investing or value investing.


A measure of a company’s leverage (the amount of debt it owes), usually as a result of issuing corporate bonds, compared with the level of equity left in the company. Generally higher gearing makes a company more vulnerable in a downturn, although appropriate gearing varies by sector.

Gilt edged

Used to describe a UK government-issued fixed-interest security.

Government bond

A fixed income security issued by a government in its own currency to support national spending. Compare sovereign bond.

Gross redemption yield

The amount of return an investor will realise from a bond, before any tax liability is subtracted. See also redemption yield.

Growth investing

An investment style focusing on shares in companies whose earnings are expected to rise at an above average rate, for which investors are usually prepared to pay a premium. Compare GARP, value investing.


Shares in mainland Chinese companies listed on the Hong Kong Stock Exchange.

Hang Seng Index

An index of 40 of the largest companies trading on the Hong Kong stock exchange, widely used as a barometer for the Hong Kong economy.

Hard commodities

Any raw goods extracted or mined from the ground, such as oil, coal or metals, which can be exchanged by being bought directly or traded on a commodities exchange.

Hedge Fund

An investment fund that uses non-traditional investment methods with the aim of achieving high returns. The risks involved and investments purchased vary considerably, but all share to some degree an absolute return approach, limited correlation with equity and bond markets and, often, the use of borrowing strategies to enhance returns.


Trading activity aimed at reducing risk in a portfolio, which can still generate a return.

High-Yield Bond

A Bond that has a lower credit rating than other Bonds, increasing the potential risk of loan default. In return for the increased risk, the Bond will pay a higher interest rate (‘yield’) than investment grade Bonds.

Historic yield

A measure of performance comprising the dividend pay outs declared over the preceding twelve months as a percentage of the mid-market unit price on a given date. It does not include any preliminary charge and dividends may be subject to tax.


Used to describe a takeover attempt which is not welcomed or invited by the management of the target company. The opposite approach is known as a ‘friendly’ takeover.

IA Sector

The IA sectors divide funds available in the UK, including some offshore (EU) funds, into smaller groups, to allow you to make like-for-like comparisons between funds in a sector.


Investment Company with Variable Capital. A type of open-ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. An investment company formed under these regulations must create shares when money is invested and redeem shares as requested by shareholders.


An asset which is not easily convertible into cash.


Used to describe share certificates which are held at a central depository rather than being physically delivered to the investor. Immobilisation is aimed at streamlining share transactions.


Used to describe work carried out within a company rather externally.


The total amount a company owes at a given time.

Index fund

A mutual fund that invests proportionately in the stocks which make up an index with the aim of tracking its performance. Mutual funds are open-ended funds which pool money from different investors.

Index return

The rise in value of an index over a given period of time.


Describes a security whose principal or interest is linked to changes in the Retail Price Index (RPI).


Plural of index.


A measure of how fast prices are rising in the economy, expressed as a percentage.

Inflation risk

The risk to an investment of its value being eroded because increases at a rate lower than inflation.

Inflation risk premium

The additional return necessary to compensate for inflation.

Information ratio

A measurement of how well investments have performed, given the risk involved, calculated by dividing the return over and above the benchmark/index by the standard deviation of those returns. See also Sharpe ratio.


The physical systems and structures of a country or business, such as buildings, communications, transportation and utilities. Public infrastructure investment projects may be funded publicly, privately or through public-private partnerships.

Inside information

Facts which are not publicly available, usually known only to the management or employees of a company. Used especially when these facts could be exploited for financial advantage.

Insider dealing

Illegal investment activity which involves the use of non-public information for personal gain.

Interest charge

The additional amount payable for money to be lent or for delaying repayment.

Interest cover

A measure of how easily a firm can repay its debt, comprising an accounting ratio calculated by dividing the earnings before interest and tax by the interest charge.

Interest rate risk

The risk that an investment's value will change due to a change in interest rates. Such changes usually have an adverse effect on the value of fixed income securities.

Interest rate swap

A contract to exchange fixed rate interest payments for floating payments on a specific principal amount. Usually used to manage exposure to fluctuations in interest rates by allowing companies to pay fixed rates and receive floating-rate payments. The fixed rate required for the uncertainty of having to pay the floating rate is known as the swap rate. It reflects both forward expectations for interest rates and the market's perception of the credit quality of AA-rated banks active in this market. Interest rate swaps are commonly used to allow portfolio managers to add or subtract duration or to express views on credit risk, and can act as substitutes for other, less liquid, fixed income investments.

Interest rate-driven phase

A period when interest rates in an economy are the deciding factor driving the price of equities.

Investment grade

Used to describe bonds or securities which are regarded as investable and unlikely to carry a high risk of default. Formally, bonds with the highest AAA to BBB- ratings are regarded as being investment grade by leading credit rating agency Standard & Poor's. Ratings are based on an assessment of capacity to meet financial commitments such as paying interest and repaying capital, as follows: AAA = ‘extremely strong’ capacity AA = ‘very strong’ A = ‘strong’ but somewhat susceptible to adverse economic conditions and changes in circumstances. BBB = adequate but more subject to adverse economic conditions. BBB- (minus) = the lowest rating before sub-investment grade. See also credit rating, investment grade, sub-investment grade.

Investment process

The steps taken to choose the investment strategy and decide which stocks to buy.

Investment style

A particular approach an investment manager takes in an attempt to generate returns for investors. Types of investment style include GARP, growth investing, value investing.

Investment trust

A company quoted on the stock exchange which invests in other companies and in securities. The value of these investments decides the basic value of the shares in the trust; the actual trade price depends on supply and demand.


Initial Public Offering. The activity of formally offering shares in a company for the public to purchase for the first time, also known as a flotation.


International Securities Identification Numbers (ISIN) uniquely identify a financial security for trading and settlement purposes.


Japanese Government Bond. JGBs play an important role in the Japanese securities market.

Junk bond

A colloquial term for a sub-investment grade bond i.e. one carrying a rating of ‘BB’ or lower.


The time delay between what an economic indicator shows and how the economy is performing.

Large-capitalisation stocks

Shares in companies that typically have a market capitalisation of more than US$5 billion. Such companies are usually well-established and operate globally. See also ‘Market capitalisation’.

Late cycle

Used to describe a market or company which tends to be affected as the economy moves into recession.

Letter of agreement

A formal document creating an arrangement between an investment adviser or company and their client, setting out the terms under which services will be carried out.

Liability matching

An investment strategy which aims to match future liabilities with assets considered to have the long-term cash flow characteristics needed to meet them. This approach is increasingly influencing the investment style and benchmark/index choice of pension fund managers.

Liability profile

A schedule showing when liabilities become due over time. For pensions, the liabilities are the actual pension payments.


The ability of assets to be readily converted into cash. Also used to refer to how easy it is to buy or sell securities in a market without moving the price.

Liquidity risk

The possibility of an investor being unable to find a buyer when they want to sell an asset. This can result in the investor having to sell the asset at a substantial discount.


Used to describe companies whose equities are quoted on a stock exchange.


Money lent to an entity under a contractual arrangement agreed between the borrowers and lender, in exchange for interest throughout the life of the loan and expected repayment of the loan at maturity.


Used to describe the situation where a security is owned, usually in the expectation of making an investment return because of expected price increases. Compare shorting.

Macaulay's duration

A measure of the price of a fixed-interest investment to interest rate changes, expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean they rise. Named after Frederick Macaulay, who first defined it.


Used to describe factors that influence the economy as a whole, such as unemployment, inflation, total output, money supply and exchange rates.

Management fees

Fees charged by investment managers for running portfolios or mutual funds for clients.

Market capitalisation

The value of a company as calculated by multiplying the total number of shares issued by their market price.

Market risk

The element of risk which is intrinsic in the market and cannot be neutralised by having a wide spread of investments.


A dealer in securities who quotes buying and selling prices to possible clients. Market-makers can hold shares and help keep the market liquid.


The period of time for which a financial instrument remains outstanding. Maturity refers to a finite time period at the end of which the financial instrument will cease to exist and the principal is repaid with interest. The term is most commonly used in the context of fixed income investments, such as bonds.


Middle East and North Africa. A term used to describe the group of countries in this geographical area. It has no standard definition, although the World Bank includes the following countries: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, the West Bank and Gaza, and Yemen.


The combination of two or more companies into a single legal entity.


Used to describe the behaviour and purchasing decisions of individuals and firms.

Mid-cap stocks

Shares in medium-sized companies, usually defined as those with a typical market capitalisation of between US$1 billion and US$5 billion. See also market capitalisation.


The average price between the bid and offer price.

Minimum Funding Requirement (MFR)

A legal requirement for defined benefit pension schemes to maintain a certain level of funding. A yearly solvency test is carried out for each scheme.

Modified duration

A measure of the price sensitivity of a bond to interest rate movements which is an extension of Macaulay's duration. It differs by taking into account the number of accrued interest payments and the frequency of the remainder of the payments due. Modified duration is used to determine the effect of a 1% change in interest rates on the price of a bond, whereas Macaulay's duration looks at the overall sensitivity of the price of a bond over its full term to maturity.

Monetary asset

An asset whose value in money terms does not change over time (for example it is not index-linked). The return on the asset is generated from its income.

Monetary policy

Government policy which uses interest rates and money supply in an attempt to influence major economic factors, such as inflation and overall demand.

Money-weighted return

The profit achieved over a period of time, unadjusted for cash moving in or out of the fund.

Morningstar Rating

A ranking ranging from one to five stars, with five being the best, given to publicly traded mutual funds by the investment research firm Morningstar.


A leading provider of global equity indices which measure the performance of countries, regions and industry sectors.

New issues

New securities made available to the market by a company. They can be shares or bonds.


Used to describe the face value of a share or bond, as opposed to the market value.


Used to describe a pension scheme completely paid for by the employer, towards which the employee does not have to pay.

Notional fund

A theoretical investment vehicle referred to when demonstrating investment management ideas or practices.


Obligations Assimilables du Trésor. Long term French Government bonds.


A goals or target set for an investment manager.


Open Ended Investment Company. A type of unit trust where the bid price and offer price are the same.

Offer price

The price at which a security is offered to the market by a seller.

Ongoing Charge

Estimated charges taken from the Fund over one year

Ongoing Charges Figure (OCF)

The ratio of the total ongoing charges relating to a fund compared to the average net asset value, calculated over a 12 month period and expressed as a percentage. It includes all payments made to the Fund Manager, the Investment Manager, the depositary or trustee and the custodian, plus administration, audit and legal fees. However, it excludes costs such as performance fees, transaction costs (the cost of buying and selling securities) and fees paid directly by investors, such as entry/exit fees.


A financial contract which gives the right (but not the obligation) to buy or sell a stock at a particular price and within a particular time period.


Used to describe the growth of a company achieved by its own efforts, as opposed to through buying or taking over other companies.


To provide better returns than a particular benchmark, usually an index.

Overseas equities

Equities traded on exchanges outside the country where the investor is based. Usually purchased to provide portfolio diversification because they are subject to different market conditions.


Used to describe a situation where a portfolio holds a higher proportion of a particular security compared with the relevant index, usually to achieve additional returns. Also used by analysts to describe a security expected to outperform its industry, sector or the market as a whole.

Pacific Basin

A term used to refer to those Asian countries which form an arc around the Pacific, including Thailand, Indonesia, the Philippines, Singapore and Malaysia.

Passive fund

A fund which aims to reproduce the performance of a relevant index by investing in securities in the same proportions. Also known as an index fund, it is considered a relatively safe form of investing compared to an active fund, which is constantly managed by an individual manager or team in an attempt to beat the index and provide higher returns.

Payout ratio

The dividend paid as a proportion of net profit (total profit less tax), expressed as a percentage.

Peer group

A group of funds with a similar investment objective or which inhabit a similar investment universe. Peer group analysis enables investors to compare a fund's performance relative to similar funds.


The fixing of a value at a certain level, or so that it directly tracks another value, typically used to describe a preset exchange rate between two currencies. Can also be used to refer to a valuation measure, the price/earnings to growth rate, popular with some investors in the late 1990s.

Performance attribution

The classification of performance into the sources or root causes of that performance, such as asset allocation, stock selection and currency overlay.

Performance fees

Fees earned by the investment manager which vary depending on the fund's performance.

Performance-monitoring agency

An organisation whose function is to measure and analyse the performance of investment funds.

Policy contribution

The degree to which success derives from effective asset allocation.

Pooled vehicle

A fund such as a mutual fund or pension fund which uses the combined capital from different investors to purchase securities in a single portfolio. Investors usually benefit from the resulting economies of scale, diversification and professional management.

Portable alpha

A fixed income strategy designed to deliver slightly more than gilts by separating beta (returns resulting from an overall increase in the market) from alpha (returns over and above the market return). Usually derivatives are used to secure beta while an actively managed element generates alpha.


A collection of investments belonging to one client or, for pooled funds, managed by one investment manager, usually including more than one asset class as well as cash or an equivalent.

Portfolio construction

Selecting a collection of securities to achieve the client's objectives.

Portfolio Exposures

A measurement of how much a fund is invested in a particular financial security and/or market sector and/or industry. The measurement is usually represented as a percentage of the overall fund or a percentage relative to its benchmark.

Portfolio risk

The risk associated with a particular collection of securities created as the manager tries to meet the set performance objectives. Compare market risk.

Positive profit surprise

A situation where a company reports earnings that are higher than market analysts expected.


The amount by which one value is higher than another, for example the extra paid for an asset above its fair value. Also the fee paid to buy an option contract or to buy an insurance policy.

Price-sensitive information

Information about a security which, if released to the public, would be likely to cause a change in its quoted market price.

Price/book (P/B) ratio

A financial ratio calculated by dividing the market value of a security by its net asset value. The higher the ratio, the more expensive the shares look. More suitable for some industries than others.


The original sum invested.

Private equity

Capital offered by individuals or specialised firms in return for an equity stake in an unquoted company. See also alternative investments, venture capital.


The act of selling a publicly owned company by formally offering shares via flotation on the stock market. Particularly popular during the 1980s and 1990s in the UK.

Profit margin

A measure of profitability, calculated by dividing net earnings (earnings after tax) by revenues. A low profit margin is often the result of competition necessitating an aggressive pricing strategy.

Profit warning

A public announcement by a company that actual profits for a given period are likely to fall below those forecast by the market.

Program trade

A sale or purchase of a share using a computer-generated buying and selling program designed to trade a high volume of shares simultaneously.

Provisional median return

A temporary initial calculation of the median performance of all funds in a sample, given before all information has been collected.


Qualified Foreign Institutional Investor. A scheme introduced by the Chinese government in 2002 to open up the domestic A-Share market to foreign investors. The scheme allows licensed foreign institutions to invest in a quota of Renminbi-denominated A-Shares (the renminbi is the official currency of the People’s Republic of China, a unit of which is known as a yuan).

Qualitative analysis

Analysis which involves subjective assessment of the prospects for a company.

Quantitative analysis

Mathematical or statistical analysis involving measuring purely numerical factors.

Quantitative easing (QE)

Increasing the money supply in an economy in a bid to stimulate economic growth, typically through large-scale purchases of financial assets such as government bonds by the central bank. Used by countries including the UK and US in the wake of the 2008 financial crisis.


Used to describe three-monthly periods, usually ending in March, June, September and December.


One of four equal bands into which all fund performance can be divided. The top performing 25% of funds are in the first quartile, the next 25% in the second, and so on.

Ratings agency

An organisation that formally evaluates the ability of security issuers to meet their obligations with respect to those securities and assigns an appropriate credit rating. The largest ratings agencies are Standard & Poors, Moody's and Fitch.


Used to describe a share whose price/earnings ratio rises as a result of improvements in the profit-earning profile or outlook of the company.

Real asset

Is a term used to describe an assets whose value rises with inflation. They are often linked to the economic cycle, for example, property and equities.

Real estate

Another term for property, including residential property such as houses and commercial property such as offices and shops.

Real risk-free rate of return

A theoretical measure which defines the 'appropriate ' return for a totally risk-free investment.


Used to describe securities, including units of a pooled fund, sold back to the issuer in return for cash.

Redemption yield

The estimated total return on a bond if held until redemption, expressed as an annual yield. This takes into account the current market price of the bond, but also allows for the change in capital value for the period until redemption. Also called the yield to maturity.

Relative Curve Positioning by Duration Contribution

The total duration of a bond portfolio is composed of various duration ‘contributions’ or exposure along the yield curve. The portfolio has exposure to various sectors of the yield curve (specifically 0-5yrs, 5-15yrs, 15-30yrs, +30yrs) and this exposure is then compared to the index to give the relative exposure, with a positive being an overweight exposure, and a negative an underweight.

Relative performance/ return

The performance of a particular investment compared to a benchmark such as the index or peer group. For example, if a UK Equity fund had a return of 6% and the FTSE a 5% return, the relative return would be +1%. A relative return investment approach is designed to deliver better performance than the relevant benchmark/index.

Rights issue

An offer of extra shares in a company made to existing shareholders in proportion to their existing holdings. Used as a means of raising funds.


Factors which could positively or negatively affect the actual returns from an investment. All investments contain some element of risk. See also counterparty risk, credit risk, currency risk, inflation risk, interest-rate risk, liquidity risk, market risk, specific risk.


Used to describe the tolerance of an investor who has a conservative approach to investing and prefers that risk is limited.

Rolling three year periods

The three years immediately preceding a given point in time. For example, the rolling three years to 31st March 2008 refers to the period 31st March 2005 to 31st March 2008.

RPI (Retail Price Index)

An index of the current prices of a representative 'basket' of goods, one of two commonly used measures of inflation in the UK (the other being the Consumer Price Index). Used to compare the prices of goods at different times and thereby work out the effect of inflation.

Rule of 20

A principle, not commonly used today, which states that the stock market is fairly valued when the average price/earnings ratio equates to 20 minus the rate of inflation. For example, if inflation stands at 2.5%, the price/earnings ratio should be 17.5.

Running yield

A measure of the performance of a security calculated by dividing the annual income in terms of interest or dividends by its current market price. Also known as the current yield.


A mathematical technique used to highlight candidates for inclusion in a portfolio by ranking them on measures such as dividend yield and price/earnings ratio. Often used to focus limited research resources on promising stocks.


An instrument representing financial value. Generally divided into debt securities, or bonds, which comprise a portion of the debt owed by a company, and equity securities, or shares, which constitute a portion of the company’s equity.

Selection contribution

That part of investment performance created by effective equity or bond selection.

Selling forward

Offering a contract to sell a set quantity of a given investment (for example, a currency) at a fixed price on an agreed future date.


The formal process of concluding a deal by exchanging payment and title to assets. Nowadays this is largely carried out electronically in the UK.

Share certificate

The formal document held by the investor confirming their ownership of shares in a company.

Share price

The price at which a single share in a particular company can be bought or sold at any given time.

Sharpe ratio

A measure of the return achieved for each unit of risk taken, calculated by subtracting the risk-free return (typically cash) from the investment return, and dividing the result by the standard deviation (a measure of risk expressing the variance of actual returns from expected returns).


Used to describe activity which involves selling something such as a security which you have not yet purchased and so do not possess. See shorting.

Short- dated bond

A bond with five years or less to run until the debt is paid.


Selling something, for example a security, you do not possess. Usually done in anticipation of the market falling so that what has been sold ‘short’ can be covered, in other words bought, at a lower price, thus creating a profit.


A phase when the growth rate of an economy slows to a lower rate than in the immediately preceding period (but does not go into decline). The economy is not normally viewed as being in a recession, but unemployment may rise and productivity decline.

Small-capitalisation stocks

Stocks in companies with a typical market capitalisation of less than US$1 billion. Small capitalisation stocks represent companies that are less well-established than their larger competitors. See also market capitalisation.

Soft commission

Money paid by a stockbroker to a fund manager for additional services (such as software to help the investment process) in return for trading through that particular broker.

Soft commodities

Raw goods such as cattle and crops which are farmed or grown and which can be exchanged during commerce, either by being bought directly or traded on a commodities exchange. See also commodities, hard commodities.


Used to describe being in a position where your assets are enough to cover all your liabilities.

Sovereign bond

A fixed income security issued by a government in support of national spending which is denominated in a foreign currency. Generally regarded as riskier than government bonds as they are subject to movements in exchange rates.

Specialist (management)

A fund manager who focuses on a specific area of investment, such as UK equities.

Specific risk

The risks associated with an individual security. Also known as idiosyncratic risk.

Spread Duration

A measure of the percentage change in a bond price for a 1% change in credit spread.

Stamp duty

A tax paid in the UK on purchases of investments, such as property and equities.

Standard balanced discretionary

Used to describe a traditional approach to managing funds where the manager makes decisions to invest across different asset classes on behalf of the client, allocating them according to their attractiveness and appropriateness to the client’s aims and risk appetite (how willing they are to take risks).

Standard deviation

A measure of the variance of a set of data from its mean. Calculating the standard deviation of the returns on an investment gives a measure of the volatility, or risk, of the investment – the higher the value, the more risky the investment.

Statement of investment principles (SIP)

A specific formal document stating the basis on which the fund managers for a pension fund are to be selected and how the fund is to be invested. Written by the trustees of a pension scheme, usually assisted by their pension and investment consultant.

Stock market flotation

The activity of formally offering shares in a company via the stock market for the public to purchase for the first time.

Stock selection

The process of choosing which stocks will be included in a portfolio.


Buying and selling stocks on behalf of a client. Investors employ stockbrokers to buy or sell stock for them.

Structured products

Pre-packaged investment strategies designed to meet specific needs which standard financial instruments cannot achieve. Different structured products are aimed at delivering a range of outcomes in respect of the return on initial capital invested, often using derivatives to assist in this. Structured products are linked by a pre-set formula to the performance of an index, a combination of indices or other specific factors. If performance is not within the specified limits the holder could lose some or all of the capital invested.

Sub-investment grade

Used to describe bonds or securities which are regarded as carrying a higher risk of default and sensitivity to economic conditions. Formally, bonds with a Standard & Poor's rating of either BB, B, CCC, CC, C, or D are regarded as being sub-investment grade. Ratings are defined as follows: BB-rated: less vulnerable in the near-term to default, but faces major ongoing uncertainties to adverse business, financial, and economic conditions. B-rated: more vulnerable to adverse business, financial, and economic conditions, but currently has the capacity to meet financial commitments. CCC-rated: currently vulnerable and dependent on favourable business, financial, and economic conditions to meet financial commitments. CC-rated: currently highly vulnerable. C-rated: has had a bankruptcy petition filed or similar action taken against the provider, but payments or financial commitments are continuing. D-rated: already in default. Sub-investment grade bonds are sometimes known as junk bonds. See also: credit rating, investment grade, junk bond.


A situation where there are more assets than are needed.


An arrangement between two parties in which they agree to exchange streams of payments as a way of reducing risk. The exchange may involve interest payments (with one party typically paying at a fixed rate while the other makes payments which float with the index), bonds or currency.

Systematic risk

The element of risk which is intrinsic in the market and cannot be neutralised by having a wide spread of investments.

Tailored benchmark

A benchmark adapted to the specific requirements of a fund.

Thematic investing

A style of investing that focuses on identifying trends such as demographic or climate change which may have an impact on economies and financial markets.

Time-weighted return

A measure of the compound growth rate of a portfolio which eliminates the effect of inflows of new money. It assumes that all cash distributions are reinvested in the portfolio and a specific time period is used to enable comparison with the performance of other fund managers. Also called the geometric mean return.


Used to describe investment decisions based on major economic and political factors rather than the specific circumstances of the individual investment.

Total return

The overall return generated by the investment, including both income and capital growth.

Tracking error

A measure of the volatility of the active return when comparing the fund with a benchmark or index.

Trade deficit

A situation where the value of a country's physical imports is greater than the value of its exports. Also used to describe the numerical amount of such a difference.


The value of shares traded in a given period as a percentage of the total value of the portfolio.

Underlying yield

A measure of the performance of a fund which expresses the annualised income after expenses of the fund (calculated in accordance with relevant accounting standards) as a percentage of the mid-market unit price of the fund on a given date. It is based on a snapshot of the portfolio on that day. It does not take into account any preliminary charges or tax on distributions.


To provide a lower return on investment than the relevant benchmark or index.


Used to describe a security which is priced below what is considered to be fair value, i.e. below the selling price in a totally transparent and free market.


Used to describe a situation where a portfolio holds a lower proportion of a particular security compared with the relevant index, usually as an act of caution on the part of the investment manager. Also used by analysts to describe a security expected to underperform its industry, sector or the market as a whole.

Underwriting commission

The cash premium paid to an underwriter for guaranteeing against a specific financial risk, such as the risk involved in a security transaction.

Unit trust

The term for an open-ended pooled investment vehicle created under UK trust laws. Investors buy and sell units in the fund, based on the bid and offer prices set by the investment management firm. Known elsewhere as a mutual fund.


Used in finance to describe a full set of something, such as all securities within a specified category or class, or all companies operating in a specific sector.


A sector comprising the privatised gas, electricity and water industries. Note that although telecommunication services are technically a utility most large index providers classify telecoms separately.


The determination of what an asset is worth. Also a statement showing a list of client assets, their respective costs and their current worth in the market.

Valuation Point

The time at which the assets of a fund are priced.

Value at risk (VaR)

A method used to estimate the biggest possible loss which a portfolio could incur. VaR analyses variations in performance and estimates the amount by which a portfolio could underperform based on the historic performance of its constituents.

Value investing

An investment style that focuses on shares where the investment manager considers the market price to be less than its real value. See also GARP, growth investing, value manager.

Value manager

An investment manager whose approach is to invest in underpriced securities in the belief that they will offer the best long-term reward.

Venture capital

Funding offered by private equity firms, institutions or individuals to companys with strong growth prospects, in return for an equity stake in the business.


The amount by which the value of a security or commodity, or the level of a market, interest rate or currency, varies over time.


A financial instrument which can be bought and sold, giving the holder the right to purchase a specific number of shares at a fixed price, either within a specified period or forever.


Proportion of total funds invested in a specific category within a portfolio, usually with respect to class, sector or country.

World economy

All the economies of individual countries and the international economic relationships between them, taken as a whole.

World index

An index comprising all the stock markets in the world which can be invested in, made up in proportion to their relative size in terms of value.

Wound up

Used to describe an investment fund or company which no longer operates and has closed down.

Year-on-year rate

A comparison from one year to the next. Used to work out when a trend may be changing, or when momentum in a certain direction declines.


Income divided by price, often expressed as a percentage.

Yield curve

A graph showing the relationship between yield and maturity of bonds with the same risk profile. It is used by investors to examine interest rates and inflation expectations.

Yield ratio

A measure used to compare the returns from different financial instruments. For example, the bond/equity yield ratio compares the yields being offered on equities and bonds, with a high figure suggesting that bonds are becoming expensive, or that equities are starting to look undervalued.

Yield to maturity

The estimated total return on a bond if held until redemption, expressed as an annual yield. This takes into account the current market price of the bond, but also allows for the change in capital value for the period until redemption. Also called the redemption yield.

Yield to Worst

It is the lowest potential yield that can be received on a bond without the issuer actually defaulting. This figure is derived by weighting the Yield to Worst of each bond by its relative size in the portfolio.