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Glossary

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F-I

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A

Accumulation shares A type of share where distributions are automatically reinvested and reflected in the value of the shares.
Accumulation units A type of unit where distributions are automatically reinvested and reflected in the value of the units.
Active management An approach to investing whereby capital is allocated according to the judgment of the investor or fund manager(s). The active investor aims to beat the returns from the stock market or specified index/sector, rather than to match them.
Active manager A fund manager who follows an active approach to investing. The active investor aims to beat the returns from the stock market or specified index/sector rather than to match them.
AFME Association for Financial Markets in Europe
Asset Anything having commercial or exchange value that is owned by a business, institution or individual.
Asset allocation Apportioning a portfolio's assets according to risk tolerance and investment goals.
Asset class Category of assets, such as cash, company shares, fixed income securities and their sub-categories, as well as tangible assets such as real estate.
AT1 Additional Tier 1
Average Rating calculated on the weighted average rating on the fund’s assets excluding cash with assets rated ‘Non-Rated’ receiving the lowest score

B

Bear market A market in which the prices of securities are falling, and widespread pessimism often causes the negative sentiment to be self-sustaining.
BoE Bank of England
Bond A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid.
Bond issue A set of fixed income securities offered for sale to the public by a company or government. If the bonds are sold for the first time, it is called a 'new issue'.
Bottom-up selection Selecting stocks based on the attractiveness of a company.
BTL RMBS Buy-to-Let RMBS
BOP Bank of Portugal
BOJ Bank of Japan
Bull market A market in which the prices of securities are rising, often characterised by investor optimism and confidence in continuing strong returns.
Bunds Fixed income securities issued by the German government.

C

Capital Refers to the financial assets, or resources, that a company has to fund its business operations.
Capital at risk The risk an investor faces that he or she may lose all or part of the assets invested.
Capital growth Occurs when the current value of an investment is greater than the initial amount invested.
Capital return The term for the gain or loss derived from an investment over a particular period. Capital return includes capital gain or loss only and excludes income (in the form of interest or dividend payments).
Capital structure The composition of a firm's liabilities - refers to the way a firm finances its assets through a combination of equity, which refers to raising funds by selling shares, and debt. Often when capital structure is referred to, the focus is on the firm's debt-to-equity ratio, which is an indicator of how risky a company is.
Capitalisation The total market value of all of a company's outstanding shares.
Cash equivalents Deposits or investments with similar characteristics to cash.
CET Common equity tier
Collateralised loan obligations (CLOs) CLOs are pools of corporate loans, refinanced in a securitised structure. These can either be static pools from a bank balance sheet or a managed product run by a specialist loan manager.
Commercial mortgage backed securities (CMBS) CMBS are mortgage-backed securities backed by commercial mortgages rather than residential mortgages. CMBS use structures similar to other forms of ABS.
Comparative sector A group of funds with similar investment objectives and/or types of investment, as classified by bodies such as the Investment Association (IA) or Morningstar™. Sector definitions are mostly based on the main assets a fund should invest in, and may also have a geographic focus. Sectors can be the basis for comparing the different characteristics of similar funds, such as their performance or charging structure.
Consumer Prices Index (CPI) An index used to measure inflation, which is the rate of change in prices for a basket of goods and services. The contents of the basket are meant to be representative of products and services we typically spend our money on.
Consumer receivables Consumer receivables include a large variety of unsecured consumer debt types that have been securitised including auto loans, credit card receivables and unsecured personal loans.
Convertible bonds Fixed income securities that can be exchanged for predetermined amounts of company shares at certain times during their life.
Corporate bonds Fixed income securities issued by a company. They are also known as bonds and can offer higher interest payments than bonds issued by governments as they are often considered more risky.
Coupon The interest paid by the government or company that has raised a loan by selling bonds.
Credit The borrowing capacity of an individual, company or government. More narrowly, the term is often used as a synonym for fixed income securities issued by companies.
Credit default swaps (CDS) Are a type of derivative, namely financial instruments whose value, and price, are dependent on one or more underlying assets. CDS are insurance-like contracts that allow investors to transfer the risk of a fixed income security defaulting to another investor.
Credit Duration Calculated as a bond’s price sensitivity to spread changes
Credit rating An independent assessment of a borrower's ability to repay its debts. A high rating indicates that the credit rating agency considers the issuer to be at low risk of default; likewise, a low rating indicates high risk of default. Standard & Poor's, Fitch and Moody’s are the three most prominent credit rating agencies. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of security's life.
Credit rating agency A company that analyses the financial strength of issuers of fixed income securities and attaches a rating to their debt. Examples include Standard & Poor's and Moody's.
Credit research The process of evaluating a fixed income security, also called a bond, in order to ascertain the ability of the borrower to meet its debt obligations. This research seeks to identify the appropriate level of default risk associated with investing in that particular bond.
Credit risk Risk that a financial obligation will not be paid and a loss will result for the lender.
Credit selection The process of evaluating a fixed income security, also called a bond, in order to ascertain the ability of the borrower to meet its debt obligations. This research seeks to identify the appropriate level of default risk associated with investing in that particular bond.
Credit system Refers to the means of making loans; a set of regulations and institutions involved in making loans on a commercial basis.
Curve of economic development A concept used to represent the changing needs of an economy at different stages in its development, ranging from food and basic infrastructure early on to more advanced requirements such as consumer products, travel and branded goods desired by increasingly sophisticated consumers in more advanced economies.

D

Default When a borrower does not maintain interest payments or repay the amount borrowed when due.
Default risk Risk that a debtholder will not receive interest and full repayment of the loan when due.
Derivatives Financial instruments whose value, and price, are dependent on one or more underlying assets. Derivatives can be used to gain exposure to, or to help protect against, expected changes in the value of the underlying investments. Derivatives may be traded on a regulated exchange or traded over the counter.
Developed economy/market Well-established economies with a high degree of industrialisation, standard of living and security.
Dilution adjustments The dilution adjustment is used to protect ongoing investors against the transaction charges incurred in investing or divesting in respect of creations and cancellations. The dilution adjustment is made up of the direct and indirect transaction charges. In the financial statements the direct transaction charges as a percentage of average NAV will be disclosed. This percentage will take account of those direct transaction charges that have been recovered through the dilution adjustment leaving a percentage that just represents the costs incurred in portfolio management.
Distribution Distributions represent a share in the net income of the fund and are paid out to income shareholders or reinvested for accumulation shareholders at set times of the year (monthly, quarterly, half-yearly or annually). They may either be in the form of interest distributions or dividend distributions
Distribution Yield The Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the mid-market share price of the Fund as at the date shown, net of applicable expenses.
  In addition to expected cash income, it includes the amortised annual value of unrealised capital gains/losses of current bond holdings, calculated with reference to their historic purchase price and expected redemption value (known as “effective yield from purchase price” method). It is based on a snapshot of the portfolio on the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. The Distribution Yield is higher than the Underlying Yield because a portion of the Fund’s expenses are charged to capital.
Diversification The practice of investing in a variety of assets. This is a risk management technique where, in a well-diversified portfolio, any loss from an individual holding should be offset by gains in other holdings, thereby lessening the impact on the overall portfolio.
Dividend Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year.
DoJ Department of Justice
Duration risk The longer a fixed income security, also called a bond, or bond fund's duration, the more sensitive and therefore at risk it is to changes in interest rates.

E

Earnings per share An indicator of a company's profitability - calculated as the net profit of a company divided by the number of shares in issue.
ECB European Central Bank
Emerging economy or market Economies in the process of rapid growth and increasing industrialisation. Investments in emerging markets are generally considered to be riskier than those in developed markets.
Episode A phase during which investors allow their emotions to affect their decision making, which can cause financial markets to move irrationally.
Equities Shares of ownership in a company.
Exchange traded Usually refers to investments traded on an exchange, such as company shares on a stock exchange.
Ex-dividend date The date on which declared distributions officially belong to underlying investors, rather than the fund, usually the first business day of the month.
Exposure The proportion of a fund invested in a particular share/fixed income security, sector/region, usually expressed as a percentage of the overall portfolio.

F

Fiscal policy Government policy on taxation, spending and borrowing.
Fixed income security A loan in the form of a security, usually issued by a government or company, which normally pays a fixed rate of interest over a given time period, at the end of which the initial amount borrowed is repaid. Also referred to as a bond.
Flexible ISA An ISA which allows you to withdraw and reinvest funds in the same tax year, without this reinvestment counting towards your annual ISA allowance.
Floating rate notes (FRNs) Securities whose interest (income) payments are periodically adjusted depending on the change in a reference interest rate.
FOMC The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve Board that determines the direction of monetary policy. The FOMC is composed of the board of governors, which has seven members, and five Reserve Bank presidents.
Foreign exchange 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. The term foreign exchange is usually abbreviated as 'forex' and occasionally as 'FX'.
Foreign exchange (FX) strategy Currencies can be asset class in its own right, along with company shares, fixed income securities, property and cash. Foreign exchange strategy can therefore be a source of investment returns.
Forward contract A contract between two parties to buy or sell a particular commodity or financial instrument at a pre-determined price at a future date. Examples include forward currency contracts.
Fundamentals (company) A basic principle, rule, law, or the like, that serves as the groundwork of a system. A company's fundamentals pertain specifically to that company, and are factors such as its business model, earnings, balance sheet and debt.
Fundamentals (economic) A basic principle, rule, law, or the like, that serves as the groundwork of a system. Economic fundamentals are factors such as inflation, employment, economic growth.
Futures A futures contract is a contract between two parties to buy or sell a particular commodity or financial instrument at a pre-determined price at a future date. Futures are traded on a regulated exchange.

G

Gearing Is the level of a company's debt in relation to its assets. A company with significantly more debt than capital is considered to be geared.
Gilts Fixed income securities issued by the UK government.
Government bonds Fixed income securities issued by governments, that normally pay a fixed rate of interest over a given time period, at the end of which the initial investment is repaid.
Gross Purchase Yield The Gross Purchase Yield of a bond is the return a bond earns on the price at which it was purchased if held to maturity.
Gross Redemption Yield The Gross Redemption Yield is calculated using the discount rate at which the sum of all future cash flows from the bond (coupons and principal) is equal to the price of the bond and takes into account any capital gain or loss over the full period and assumes that all interest payments are reinvested.
Gross Yield The gross yield is the yield on an investment before the deduction of taxes and expenses. It is calculated as the annual return on an investment prior to taxes and expenses divided by the current price of the investment.

H

Hedging A method of reducing unnecessary or unintended risk.
High water mark (HWM) The highest level that a fund’s NAV (net asset value) has reached at the end of any 12-month accounting period.
High yield bonds Fixed income securities issued by companies with a low credit rating from a recognised credit rating agency. They are considered to be at higher risk of default than better quality, i.e. higher-rated fixed income securities but have the potential for higher rewards. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of security's life.
Historic yield The historic yield reflects distributions declared over the past 12 months as a percentage of the share price, as at the date shown.
HMT HM Treasury
HPI YoY House Price Index year-on-year

I

IA Sector Investment Association sectors have a clear definition setting out the criteria that funds must fulfil. Most sectors are organised around the principal asset types in which the fund should invest.
Income shares A type of share where distributions are paid out as cash on the payment date.
Income units A type of unit where distributions are paid out as cash on the payment date.
Income yield Refers to the income received from an investment and is usually expressed annually as a percentage based on the investment's cost, its current market value or face value.
Index An index represents a particular market or a portion of it, serving as a performance indicator for that market.
Index tracking A fund management strategy that aims to match the returns from a particular index.
Index-linked bonds Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as inflation-linked bonds.
Index-linked fund A mutual fund that invests in index-linked bonds. The latter are fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security.
Inflation The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.
Inflation risk The risk that inflation will reduce the return of an investment in real terms.
Inflation-linked bonds Fixed income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as index-linked bonds.
Initial public offering (IPO) The first sale of shares by a private company to the public.
Interest Rate Duration Modified duration based on the asset’s mid-price.
Interest rate risk The risk that a fixed income investment will lose value if interest rates rise.
Interest rate swap An agreement between two parties to swap a fixed interest payment with a variable interest payment over a specified period of time.
Investment Association (IA) The UK trade body that represents fund managers. It works with investment managers, liaising with government on matters of taxation and regulation, and also aims to help investors understand the industry and the investment options available to them.
Investment grade bonds Fixed income securities issued by a company with a medium or high credit rating from a recognised credit rating agency. They are considered to be at lower risk from default than those issued by companies with lower credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.
Issuer An entity that sells securities, such as fixed income securities and company shares.

J

JGB Japanese government bond

L

Leverage When referring to a company, leverage is the level of a company's debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to a fund that borrows money or uses derivatives to magnify an investment position.
Liquidity A company is considered highly liquid if it has plenty of cash at its disposal. A company's shares are considered highly liquid if they can be easily bought or sold since large amounts are regularly traded.
Long position Refers to ownership of a security held in the expectation that the security will rise in value.

M

Macroeconomic Refers to the performance and behaviour of an economy at the regional or national level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance. Sometimes abbreviated to 'macro'.
MTM Yield MTM Yield/Mark-to-market yield which is the total return anticipated on a bond if the bond is held until the end of its lifetime and takes into account the bond’s current market price, par value, coupon interest rate and term to maturity.
Maturity The length of time until the initial investment amount of a fixed income security is due to be repaid to the holder of the security.
Modified duration A measure of the sensitivity of a fixed income security, called a bond, or bond fund to changes in interest rates. The longer a bond or bond fund’s duration, the more sensitive it is to interest rate movements.
Monetary easing When central banks lower interest rates or buy securities on the open market to increase the money in circulation.
Monetary policy A central bank's regulation of money in circulation and interest rates.
Monetary tightening When central banks raise interest rates or sell securities on the open market to decrease the money in circulation.
Morningstar™ A provider of independent investment research, including performance statistics and independent fund ratings.
Multiverse “Multiverse” is the universe of all publicly traded government and corporate bonds

N

NC RMBS Non-Conforming RMBS
Near cash Deposits or investments with similar characteristics to cash.
Net The proportion of a fund invested in, for example, different sectors. Derivatives are included. The latter are financial instruments whose value, and price, are dependent on one or more underlying assets.
Net asset value (NAV) A fund’s net asset value is calculated by taking the current value of the fund's assets and subtracting its liabilities.
NPL Non-performing loans

O

Open-ended investment company (OEIC) A type of managed fund, whose value is directly linked to the value of the fund's underlying investments.
Options Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a given date in the future.
Over-the-counter (OTC) Whereby financial assets are traded directly between two parties. This is in contrast to exchange trading, which is carried out through exchanges set up specifically for the purpose of trading. OTC is also known as off-exchange trading.
Overweight If a fund is ‘overweight’ a stock, it holds a larger proportion of that stock than the comparable index or sector.

P

Passive management An approach to investing whereby capital is allocated according to the stock or sector weightings of an index. Passive management is also referred to as 'indexing' or 'tracking'.
Passive manager A fund manager who takes a passive approach to investing. The passive investor aims to match the returns from the stock market or specified index/sector, rather than to beat them.
Payment date The date on which distributions will be paid by the fund to investors, usually the last business day of the month.
Physical The fund's exposure excluding derivatives, which are financial instruments whose value, and price, is dependent on one or more underlying securities.
Physical assets An item of value that has tangible existence, for example, cash, equipment, inventory or real estate. Physical assets can also refer to securities, such as company shares or fixed income securities.
Portfolio transaction cost The cost of trading, such as brokerage, clearing, exchange fees and bid offer spread as well as taxes such as stamp duty.
Prime RMBS TBD
Price-earnings ratio A measure that compares a company's current share price to its earnings per share. It provides a guide to the market's opinion about the company's future earnings prospects. Calculated by dividing the market value per share by the earnings per share.
Principal The face value of a fixed income security, which is the amount due back to the investor by the borrower when the security reaches the end of its life.
Private placement An offer of sale of securities to a relatively small number of investors selected by the company, generally investment banks, mutual funds, insurance companies or pension funds.
Profit & loss (P&L) A financial statement that summarises a company's revenues, costs and expenses during a specific time period - usually a quarter or year.

Q

QE Quantitative Easing

R

Real return The return on an investment, adjusted for changes in prices in an economy.
Real yield The return of an investment, adjusted for changes in prices in an economy.
Residential mortgage backed securities (RMBS) RMBS are pools of mortgage loans created by banks and other financial institutions. They represent the largest component of the European ABS market and are the most liquid.
Retail Prices Index (RPI) A UK inflation index that measures the rate of change of prices for a basket of goods and services in the UK, including mortgage payments and council tax.
Risk The chance that an investment's return will be different to what is expected. Risk includes the possibility of losing some or all of the original investment.
Risk management The term used to describe the activities the fund manager undertakes to limit the risk of a loss in a fund.
Risk premium The difference between the return from a risk-free asset, such as a high-quality government bond or cash, and the return from an investment in any other asset. The risk premium can be considered the 'price' or 'pay-off' for taking on increased risk. A higher risk premium implies higher risk.
Risk/reward ratio A ratio comparing the expected returns of an investment with the amount of risk undertaken.
Risk-free asset An asset that notionally carries no risk of non-payment by the borrower such as a high-quality fixed income security issued by a government or cash.

S

Safe-haven assets Refers to assets that investors perceive to be relatively safe from suffering a loss in times of market turmoil.
Security Financial term for a paper asset – usually a share in a company or a fixed income security also known as a bond.
Share class Each fund has different share classes, such as I, A, R. Each has a different level of charges and minimum investment.
Share class hedging Activities undertaken in respect of hedged shares to mitigate the impact on performance of exchange rate movements between the Fund’s currency exposure and the investor’s chosen currency.
Short position A way for a fund manager to express his or her view that the market might fall in value.
Short selling This often refers to the practice whereby an investor sells an asset they do not own. The investor borrows the asset from someone who does own it and pays a fee. The investor must eventually return the borrowed asset by buying it in the open market. If the asset has fallen in price, the investor buys it for less than they sold it for, thus making a profit. The contrary may also occur.
Short-dated corporate bonds Fixed income securities issued by companies and repaid over relatively short periods.
Short-dated government bonds Fixed income securities issued by governments and repaid over relatively short periods.
Sovereign debt Debt of a government. Also referred to as government bonds.
Standard deviation A statistical measure of dispersion of a set of data from its mean, indicating the spread of a fund's returns over a certain period of time.
Sub-investment grade bonds Fixed income securities issued by a company with a low rating from a recognised credit rating agency. They are considered to be at higher risk from default than those issued by companies with higher credit ratings. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.

T

TFS Term Funding Scheme
Top-down investing An investment approach that analyses economic factors, i.e. surveys the 'big picture', before selecting which companies to invest in. The top-down investor will look at which industries are likely to generate the best returns in certain economic conditions and limit the search to that area.
Total return The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest or dividend payments) and capital gains.
Transaction cost The cost of trading, such as brokerage, clearing and exchange fees as well as taxes such as stamp duty.
Treasuries Fixed income securities issued by the US government
Triple A or AAA rated The highest possible rating a fixed income security, also called a bond, can be assigned by credit rating agencies. Bonds that are rated AAA are perceived to have the lowest risk of default. Default means that a company or government is unable to meet interest payments or repay the initial investment amount at the end of a security's life.

U

UCITS Stands for Undertakings for Collective Investments in Transferable Securities. This is the European regulatory framework for an investment vehicle that can be marketed across the European Union and is designed to enhance the single market in financial assets while maintaining high levels of investor protection.
Unconstrained The term used to describe the mandate of a fund whereby the manager has the freedom to invest according to his or her own strategy, not being obliged to allocate capital according to the weightings of any index, for example.
Underlying value The fundamental value of a company, reflecting both tangible and intangible assets, rather than the current market value.
Underlying Yield The Underlying Yield reflects the annualised income net of expenses of the Fund as a percentage of the mid-market share price of the Fund as at the date shown. In addition to expected cash income, it includes the amortised annual value of unrealised capital gains/losses of current bond holdings, calculated with reference to their historic purchase price and expected redemption value (known as “effective yield from purchase price” method). It is based on a snapshot of the portfolio on the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. The Underlying Yield is calculated net of all expenses, not including the portion charged to capital. This has the effect of increasing distributions and constraining the Fund’s capital performance.
Underweight If a portfolio is ‘underweight’ a stock, it holds a smaller proportion of that stock than the comparable index or sector.
Unit trust A type of managed fund, whose value is directly linked to the value of the fund's underlying investments.
Unit/share type Type of units/shares held by investors in a trust or fund (unit/share types differ by features such as whether income is to be paid out as cash or reinvested on the payment date).
UST US Treasuries

V

Valuation The worth of an asset or company based on its current price.
Valuation metrics Measures used for determining the current worth of an asset or company.
Volatile When the value of a particular share, market or sector swings up and down fairly frequently and/or significantly, it is considered volatile.
Volatility The degree to which a given security, fund, or index rapidly changes. It is calculated as the degree of deviation from the norm for that type of investment over a given time period. The higher the volatility, the riskier the security tends to be.

W

Warrant A security issued by a company that gives the holder the right to buy shares in that company at a specified price and within a certain timeframe.
Weighted average life (WAL) The weighted average life (WAL) is the average length of time that each unit of unpaid principal on an amortising bond remains outstanding.

Y

Yield This refers to either the interest received from a fixed income security or to the dividends received from a share. It is usually expressed as a percentage based on the investment's costs, its current market value or its face value. Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year.
Yield (bonds) This refers to the interest received from a fixed income security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.
Yield (equity) Refers to the dividends received by a holder of company shares and is usually expressed annually as a percentage based on the investment's cost, its current market value or face value. Dividends represent a share in the profits of the company and are paid out to a company’s shareholders at set times of the year.
Yield (income) Refers to the income received from an investment and is usually expressed annually as a percentage based on the investment's cost, its current market value or face value.
YTD Year to date

#

3 yr Volatility Annualised 3yr rolling standard deviation of daily or monthly returns (stated as appropriate)