A method of charging service- or distribution-related expenses directly against fund assets. "12b-1" refers to the 1980 U.S. Securities & Exchange Commission rule that permits the use of these plans. A fund is required to include any 12b-1 fees in its stated expense ratio.
A type of defined contribution plan (defined by section 401(k) of the Internal Revenue Code) that allows an employee to elect to defer income by making pre- or post-tax contributions to an investment plan. Contributions may be matched at some level by employers. Contributions and earnings grow tax deferred until withdrawn.
A retirement plan for employees of nonprofit organizations such as universities, churches, or public schools. The employee can contribute a portion of salary to the plan each year, and the contributions and earnings grow tax-deferred until withdrawn.
3 Year Discount Margin
The average expected return earned in addition to the index underlying, or reference rate of, the floating rate security, amortizing premium over 3 yearsBack to top
Includes the name(s) that appear on your accounts.
Trades carried out by stockbrokers on the investor’s behalf.
An approach to investing designed to deliver positive investment performance regardless of the investment environment. This differs from peer group or market index relative investing.
Commonly used to refer to the purchase of one company by another, often as a means of increasing sales and enabling economies of scale or eliminating a competitor.
Refers to investment managers who aim to outperform a particular benchmark/index by making decisions about the type of investment to buy or which stocks to buy.
Those members of a pension scheme who are working employees of the company.
The difference between a portfolio and a benchmark/index, in the proportions in different classes of asset or specific stock.
Is a study 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 who is an expert on statistical analysis. The actuarial profession is broad ranging, but generally they focus on the links between an institutional client’s assets and liabilities; life expectancy, the risk of death, and probabilities (the likelihood of things happening).
A bid which is accepted willingly by the target company.
Algorithmic trading is the process of using computers programmed to follow a defined set of instructions for placing a trade. These rules are based on timing, price, quantity or any mathematical model and are designed to attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock’s price. Orders executed through trading algorithms rather than placed through a sales trader may be known as “Low Touch”.
An index made up entirely of UK government bonds.
A measure of outperformance compared with the market.
Asset classes other than bonds, equities and cash. See also: Commodities; Hedge funds; Infrastructure; Private equity.
The average of the yearly returns over a number of years.
The current price of the instrument to be traded at the time the order is received. The difference between the arrival price and the final price the order was executed at is known as “Implementation Shortfall”.
The Association of South East Asian Nations (ASEAN) is an organisation of ten countries located in South East Asia. The association was established in 1967 with the aim of accelerating economic growth, social progress and cultural development. Today, ASEAN includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
Shares in mainland Chinese companies listed on the stock exchanges of Shanghai and Shenzhen. Foreign investment is restricted and only allowed through the Qualified Foreign Institutional Investor Scheme (QFII). See also: QFII.
The price an investor is prepared to sell a security at.
Something owned, such as an investment, property or money in the bank.
The act of deciding which categories of assets and in what proportions the “investment” should be allocated to, at any given time, to yield the most attractive risk adjusted returns. This is one of the most important roles of the investment manager.
Types of assets, such as equities, gilts, corporate bonds or cash.
See “asset allocation”.
The value of the asset held.
Sum of absolute active weights divided by two. Measures the degree to which the stock holdings of a portfolio differ from the constituents of a benchmark index or performance comparator; the portfolio holdings of high active share funds differ from an index to a greater degree than a fund with lower active share.
An illustrative measure of a range of prices which is calculated by taking the sum of the values and dividing it by the number of prices being analyzed.Back to top
See ‘standard balanced discretionary’.
A transaction to buy or sell shares. It does not imply a favourable deal.
Commonly regarded as the minimum rate that banks use to work out lending rates to their customers. The UK interest rate is set by the Monetary Policy Committee of the Bank of England.
One basis point is a unit equivalent to 1/100th of 1%, and is commonly used to show changes in interest rates and bond yields. A rise in a bond yield from 5.00% to 5.60%, for example would usually be said to be an increase of 60 basis points.
Refers to the sale or purchase of an investment at the best price available in the market at a specific time.
A measure of volatility compared with the market, which can be said to have a beta of 1.0. A stock with a beta of 1.1 can be said to be more volatile than the market while another stock with a beta of 0.9 is relatively less volatile.
The expectation that the market as a whole or particular sectors or securities will fall in value.
Benchmarks have different uses in the investment community. One use of a benchmark is to act as a measure of performance, so you can see how the value of a security has changed over time relative to the rest of the market. A second use is to act as a guide or objective for performance of an investment fund.
The risk that the benchmark for a fund is not an appropriate one for meeting future liabilities.
The price that an investor is prepared to pay for a security.
The difference between the best bid price and best offer (ask) price of a given security.
An investment style that combines both the “Value” and “Growth” styles.
A block trade is a permissible, non- competitive, privately negotiated transaction either at or exceeding an exchange determined minimum threshold quantity of shares, which is executed apart and away from the open outcry of electronic markets.
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. Also see ‘yield ratio’.
An alternative name for a fixed-income investment. Bonds are a form of debt investment, where the investor lends funds to the bond issuer. In return the lender expects to receive back the principal and interest (also known as coupons). Governments, states, local authorities or companies generally issue bonds.
A period of strong economic growth.
An approach to investment selection, based on analysing the profitability, cash flow, earnings and pricing power of companies to determine their attractiveness as investments.
Broken dates calculator
A broken date is a term used to describe forward and money market contracts, with delivery of currency and CDS, which takes place on a nonstandard date. Forward contracts usually quote periods like one month, three months etc. Forward contract maturity dates are either spot or fixed dates. Any date outside the quoted maturity date is said to be a broken date. A broken dates calculator is software that calculates forward points and rates for a currency pair and any value (settlement) date, display forward curves as well as points charts.
The situation where government spending is higher than tax revenues.
The expectation that the market as a whole or particular sectors or securities will rise in value.
Refers to a long-term German government bond.
Refers to a collapse in economic growth following a “boom”.Back to top
A general term for financial resources such as cash.
A term given to the process whereby a trading counterpart is prepared to make a price to buy or sell an amount of an instrument on its own account.
CAPS (Combined Actuarial Performance Services)
A UK company that monitors the performance of pension funds and charities.
CAPS pooled median
The CAPS pooled median is the average performance of the relevant funds in a sample.
Legal tender such as coins and notes that can be exchanged for goods and services.
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 that is based on the idea that stock prices move in set trends and that this pattern is repeated over time.
The measures taken to make sure that price-sensitive information does not leak from one department to another. The business is divided into specific departments that must not reveal confidential information to each other. This makes sure that everybody works in the best interest of their clients without breaking any insider-dealing rules.
The running of an active portfolio by a fund manager so the fund’s performance follows the movements of the index.
Another name for a pooled fund. Assets of different clients are pooled together so they can be managed together efficiently, as well being able to lower risk by investing in a wide spread of investments.
Commodities are raw goods such as oil, grains, metals and foods which can either be bought directly or traded on a commodities exchange. Commodities which are extracted or mined from the ground such as precious metals, coal or oil are usually referred to as “hard” commodities, while those that are farmed or grown on the land such as cattle and crops are generally known as ”soft” commodities. In terms of commodity investing, investors buy and sell commodities through “futures” and usually do not invest in the underlying products.
Written confirmation of an investment transaction.
When a defined benefit pension fund is in surplus, the pension fund may stop contributions for a given period (take a holiday).
Standard UK government bonds that offer a fixed rate of interest over the life of the bond. They are not index-linked.
Investment professionals who advise companies on mergers, acquisitions, flotations and raising money.
How an organisation is run and how its management is accountable to the shareholders.
Cost push inflation
A rise in prices caused by an increase in the cost of raw materials and so on.
Costs of dealing
Include commission, spreads (the difference between the buying and selling price) and stamp duty.
The risk to each party of a contract that the other party will not be able to meet its contractual obligations.
CPI (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 decisions.
Plunging stock-market prices because of a crisis of confidence. It is sometimes based on irrational pessimism rather than the underlying economic situation.
A credit rating is a formal evaluation of an individual or company’s credit history and capability of repaying financial obligations. Standard & Poor’s, one of the leading company credit rating agencies, defines their credit rating assessments as their opinion of the borrower’s capacity to meet its financial commitments on a timely basis. Moody’s and Fitch Ratings are two examples of other major credit rating agencies. See also: Investment Grade; Sub-investment Grade; Ratings Agency.
The risk of a loan or bond not being repaid.
An electronic share-dealing settlement and registration system in the UK that operates without the need for paper share certificates.
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.
Also known as 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.
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 to refer to a stock or sector which is particularly sensitive to the condition of the economy.
The interest rate that an issuer promises to pay over the life of a debt security, such as a bond, expressed as a percentage of face value.Back to top
When an investor deals directly with a market-maker. A price, including fees, is quoted for dealing in an agreed number of shares.
A bond issued by a company, secured against the company assets.
A financial ratio that shows total debts, divided by shareholders’ equity for a company. The higher the figure, the more sensitive profits are likely to be to interest rates and economic conditions.
When a previous trend breaks. Often used to refer to the relationship between bonds and equities, which tends to move within certain parameters but occasionally deviates from this.
Defensive companies are those which are less volatile than the market as a whole because their business remains relatively stable in good times and bad.
Those employees who left the company before retirement age, but are still entitled to a pension based on their service with the company.
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.
When transactions are done electronically without the need for paper documents such as share certificates.
A term describing the fall in the rating of a company’s share price.
A security, such as an option or futures contract, where the value is derived from the performance of an underlying security.
Finance provided by merchant banks and venture capitalists to fund a company’s start-up or expansion.
The limits which investment managers must not go beyond when choosing the types of asset to buy for a fund.
When profits have to be shared among more investors because a company issues extra shares, such as through a rights issue, and profits have not risen to compensate.
Actual property, often described as bricks and mortar.
The total fee paid to an investment manager by a fund if this is higher than the quoted fee. It can include transaction charges and custody fees.
Securities trading at a lower price than normal to attract buyers or sellers. Can also be used to mean that an anticipated event in the future is already reflected in a security’s price.
Where a client allows their investment manager to make all the decisions on how the portfolio is run. The investment manager can make investments without asking for the client’s approval, as long as it is a preferred class of investment and appropriate to the client’s requirements, including their risk-return appetite.
Anticipating future changes and allowing for them in today’s price.
The distribution yield reflects the amounts that may be expected to be distributed over the next twelve months as a percentage of the mid-market unit price of the fund as at the date shown. It is 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.
See “deviation constraints”.
Diversification of risk
Lowering risk by investing in a wide spread of investments.
The earnings which could be distributed to shareholders, divided by the actual dividend paid. It shows the ability of a company to maintain current levels of dividend.
The rate of increase between dividends, one year to the next.
The actual amount of dividend paid to shareholders of the company, based on the number of shares owned.
The dividend on a share divided by the market price of the share.
Demand for goods and services within the domestic economy.
Items that last and whose benefit is experienced over a period of time (for example, washing machines).
Duration is a measure of the sensitivity of a bond to interest rate changes. The higher the duration number, the greater the sensitivity to interest rate movements. Different methods of duration calculations are used depending on the types of bonds being measured. These include Macaulay’s, Effective (which is also known as option-adjusted), Modified and Duration to Worst.Back to top
A period of time over which economic activity rises and falls.
Effective yield is a calculation 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 security (bond).
Those markets where the share price reflects all past and future information and so the current price is the “right” price.
These are small stock markets in which investments can be made in newly industrialised countries (NICs) or developing countries.
See “earnings per share”.
Ordinary shares in a company, which normally give their holders voting rights.
Equity risk premium
The additional return expected from an equity which compensates for the extra risk of owning more volatile assets.
The currency unit agreed on by the members of the European Economic and Monetary Union.
European Exchange Rate Mechanism (ERM)
A mechanism entered into by members of the European Union prior to monetary union that involved fixing their exchange rates (within a narrow band) against each other.
A measure of corporate profitability worked out by dividing a company’s enterprise value (equity plus debt) by its earnings before interest, tax, losses and write-offs.
Exchange rate policy
Government policy action that is carried out to achieve targeted exchange rates.
Exchange-traded commodities, or ETCs for short, are investment vehicles that track either individual commodities or commodity indices. 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. An ETC seeks to reflect the performance of an underlying commodity, ranging from precious metals such as gold bullion and silver to agricultural goods such as wheat and soybeans.
Exchange-traded funds, or ETFs for short, are investment vehicles that track any one of a wide range of sectors or indices. 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. Similar to an index fund, an ETF seeks to reflect the performance of an index such as the FTSE All-Share Index. A good example of ETF offerings would be Barclays’ iShares.
Refers to a market or company that is affected early in the economic cycle it is subject to.
When the strength of company profits is the main reason for the price of equities.
This is the direction, strength and rate of change of the growth in overall company profits within a market.
The effective duration of a bond is the sensitivity of the bond’s price to a change in a benchmark yield curveBack to top
Federal Reserve Board
The board that governs the Federal Reserve System and banking system of the US.
Financial Conduct Authority (FCA)
The FCA and the Prudential Regulation Authority (PRA) are the bodies that regulate the financial services industry in the UK. These organisations superseded the Financial Services Authority on 1 April 2013.
See “budget deficit”.
Government policy which uses tax and public spending to change major factors in the economy, such as inflation, unemployment, overall demand and the balance of trade.
A security that pays a fixed amount of interest over a given period. See also: Bonds.
When a company first offers its shares for sale to the public (generally through an IPO).
The upper and lower limits of the range in which sterling could trade against the currencies of the countries in the European exchange rate mechanism.
A private agreement to buy or sell a specific asset at a fixed price on a fixed date in the future. A type of derivative.
Forward Points (FX only)
The number of basis points added to or subtracted from the current FX spot rate to determine the rate for settlement at a forward date. When points are added to the spot rate, there is a forward point premium; when points are subtracted from the spot rate, there is a points discount.
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 250 Index
An index containing the 101st to 350th largest companies listed on the London Stock Exchange in terms of market capitalisation.
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 SmallCap Index
An index consisting of those companies in the FT All Share Index that are not included in the FTSE 100 or the FTSE 250.
A method of analysis which focuses on the financial strength and potential for positive profits surprise from a company as a means of determining whether to invest.
The shortfall calculated by actuaries between a pension fund’s projected liabilities and assets.
An exchange-traded contract to buy or sell a specific asset at a fixed price on a fixed date in the future. A type of derivative.Back to top
Growth At a Reasonable Price. It is a style of investing that focuses on stocks that have the potential to deliver high returns over the long-term. A more flexible approach than “Growth” or “Value”.
Is a term that describes the amount of debt a company owes, usually through issuing corporate bonds, compared with the level of equity left in the company. The higher the amount of debt, the more sensitive the shares are likely to be to earnings growth. If the gearing gets too high, the prospects for the company are unlikely to be bright.
A UK government-issued fixed-interest security.
A fixed income security issued by a government in support of national spending and denominated in the country’s own currency. See also Sovereign bond.
Gross redemption yield
The yield to maturity of a bond, calculated without any allowance for tax liability. See “Redemption yield”.
Growth investing is an investment style that focuses on companies whose earnings are expected to rise at an above average rate. These investors are usually prepared to pay a premium in order to benefit from this. See also: Value Investing; Value Managers.Back to top
A term which encompasses a wide range of funds that use non-traditional investment methods. The risks involved and the investments purchased vary considerably, but all share to some degree an absolute return orientation, limited correlation with equity and bond markets and, often, the use of borrowing strategies to enhance returns.
Trading activity undertaken to reduce risk in a portfolio, which can still generate a return.
The Historic Yield reflects distributions declared over the past twelve months as a percentage of the mid-market unit price, as at the date shown. It does not include any preliminary charge and investors may be subject to tax on their distributions.
A measure used to analyse a market-makers trading effectiveness (usually for Fixed Income). It refers to the number of times they have won trades by providing the best price as a proportion of the total number of times they have been asked to quote. For instance, if the market-maker was asked to quote a price 100 times in a month and won 25 trades then their hit ratio is 25%. A high ratio shows their pricing is competitive.
Take-over attempts that are not welcomed or invited by the target company.
Shares in mainland Chinese companies listed on the Hong Kong Stock Exchange.Back to top
Stands for Investment Company with Variable Capital. It is a type of open-ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. An investment product formed under these regulations must create shares when money is invested and redeem shares as requested by shareholders.
An asset which is not easy to convert into cash.
Where share certificates are held at a central depository.
Work carried out within the company.
A company’s total debt at a given time.
A basket of securities that track the performance of a particular market or part of it.
A mutual fund that invests in the stocks which make up an index in the same proportions.
Where a security’s principal or interest is linked to changes in the retail price index (RPI).
The return of an index over a stated period of time.
Plural of index.
A measure of how fast prices are rising in the economy.
Inflation risk premium
The additional return necessary to compensate for inflation.
Is a measurement of how well investments have performed, given the risk they have taken. It is calculated by dividing the return over and above the benchmark/index, by the standard deviation of those returns. See also: Sharpe Ratio.
The systems and structures of a country or business. Infrastructure investment projects may be funded publicly, privately or through public-private partnerships. Examples include bridges, railways and roads.
Information that is not publicly available such as information which only the employees or management of a company are likely to know.
Illegal investment activity which involves the use of non-public information for personal gains.
The cost of interest on the amount borrowed.
Accounting ratio worked out by dividing the earnings before interest and tax by the interest charge. It is a measure of how easily the firm can manage to repay its debt.
Interest rate-driven phase
When the level of interest rates in an economy is the main reason for the price of equities.
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 derivative contract between two parties to exchange interest payments on a specific principal amount. 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. Swaps originated as a way of helping corporations to manage their floating-rate debt liabilities by allowing them to pay fixed rates and receive floating-rate payments. They 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.
Investment grade is a term given to bonds/securities which are regarded as investable and unlikely to carry a high risk of default. Formally, bonds with ratings falling between AAA to BBB- are regarded as being investment grade by leading credit rating agency Standard & Poor’s. AAA-rated securities are the most highly rated by Standard & Poor’s. They are classed as having an extremely strong capacity to meet financial commitments such as the paying of interest and the repaying of capital. This rating is then followed by AA-rated, which are securities considered to have a very strong capacity to meet financial commitments, and A-rated securities, which are regarded as having a strong capacity to meet financial commitments but are somewhat susceptible to adverse economic conditions and changes in circumstances. A company with a BBB-rating is regarded by Standard & Poor’s as having an adequate capacity to meet financial commitments, but are more subject to adverse economic conditions. A BBB- (minus) rating is the lowest rating before sub-investment grade. See also: Credit Rating; Investment Grade; Sub-investment Grade.
The process that decides the investment strategy and decides which stocks to choose.
An approach an investment manager takes in an attempt to generate returns for investors. Baring Asset Management is a Growth At a Reasonable Price (GARP) investor.
A company quoted on the stock-exchange which invests in other companies and in securities. The value of these investments gives the basic value of the shares of the investment trust. The actual trade price depends on supply and demand.
A type of Exchange Traded Fund provided by BlackRock. See Exchange Traded Funds.
Initial Public Offering. The first time a company offers its shares to the public. It means the same as a flotation.
IG / HY Composition
Percentage of assets in the portfolio that are investment grade vs. high yield assets.Back to top
Japanese Government Bond.
See “Sub-investment grade”.Back to top
Lagging refers to the time delay between what an economic indicator shows and how the economy is performing.
Companies that usually have a market capitalisation of typically more than US$5 billion. Large capitalisation stocks represent companies that are well-established and which usually operate on a global basis. Market capitalisation is calculated by multiplying the number of outstanding shares by the current market price of a share.
When a market or company tends to be affected by conditions late in the economic cycle.
Letter of agreement
An agreement between the investment adviser or company and the client, setting out the terms under which services will be carried out.
The matching of pension liabilities with assets that are determined to have the long-term cashflow characteristics needed to achieve this. The pension liabilities are typically calculated by actuaries, but increasingly, this approach is being reflected in investment management style and benchmark/index choice.
A time schedule showing when liabilities are due. For pensions, the liability is the actual pension payment.
The London Interbank Offered Rate is a widely used benchmark for short-term interest rates. It is fixed on a daily basis by the British Bankers’ Association.
The amount of cash or investments that can be readily converted into cash in a portfolio. Can also be used to refer to how easy it is to buy or sell securities in a market without moving the price.
The risk that an investor cannot find a buyer when they want to sell an asset. This can result in the investor selling the asset at a substantial discount.
Refers to companies whose equities are quoted on a stock exchange.
When a security is owned, usually in the expectation of making an investment return because of expected price increases. This contrasts with “shorting”, where a security is sold with a view to buying it back later at a lower price (see “shorting” definition).
LIBOR Option Adjusted SpreadBack to top
Refers to factors that influence the economy as a whole, such as unemployment, inflation, total output, money supply and exchange rates.
Fees charged by investment managers for running portfolios or mutual funds for clients.
The value of a company, based on the total number of issued shares multiplied by their market price.
The effect a market participant has on the price of an instrument when it trades. It is the extent to which the buying or selling moves the price against the buyer or seller.
An institution that quotes bid and offer prices for specific stocks or other marketable securities that it is prepared and able to buy or sell at any time on its own account.
A dealer who quotes buying and selling prices of securities to possible clients. They can hold shares and help keep the market liquid.
The level of risk in the market, which cannot be neutralised by having a wide spread of investments.
A term used to refer to countries in the Middle East and North Africa. The MENA region 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.
When two or more companies pool their assets and liabilities.
Minimum Funding Requirement (MFR)
A legal requirement that says defined benefit pension schemes must maintain a certain level of funding. A yearly solvency test is done for each scheme.
Relating to microeconomics, the study of the behaviour and purchasing decisions of individuals and firms.
Companies that usually have a market capitalisation of typically between US$1 billion and US$5 billion. Mid-cap stocks are medium-sized companies that lie between small capitalisation and large capitalisation stocks. Market capitalisation is calculated by multiplying the number of outstanding shares by the current market price of a share.
The average price between the bid and offer prices.
Government policy which uses interest rates and money supply to change major factors in the economy, such as inflation and overall demand.
The return achieved over a period of time, unadjusted for cash moving in or out of the fund.
A leading provider of global equity indices, measuring the performance of countries, regions and industry sectors.Back to top
This typically refers to an order that has been given out by an institutional investor and differentiates it from propriety trading strategies or retail trading flow trading a block against natural business may offer the opportunity to trade a block (i.e. as a buyer when there is a natural sell order advertised) without disturbing the price of the underlying security.
New securities issued by a company. They can be shares or bonds.
The headline or absolute (set) amount.
A pension fund that the employee does not have to contribute in.
A theoretical fund that is referred to when demonstrating investment management ideas or practices.Back to top
French Government bonds.
Goals or targets set for an investment manager.
Short for Open Ended Investment Company. This is a type of unit trust where the bid price and offer price are the same.
The selling price of securities.
Ongoing Charges Figure (OCF)
The OCF is calculated as the ratio of the total ongoing charges (applied to the fund) to the average net asset value (of the fund) 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. It also includes other charges such as administration, audit and legal fees. However, it does not include all costs. Some of the costs excluded include performance fees, transaction costs (the cost of buying and selling securities) and fees paid directly by investors, such as entry/exit fees.
A firm growing by its own efforts, as opposed to buying or taking over other companies.
Performance which is better than a particular benchmark/index (standard).
The phrase “over-the-counter” is used to refer to the trading of an instrument other than on an exchange order book (also known as “off-exchange”). At present this covers Fixed Income and FX trades, some derivatives and some equities.
Equities traded overseas – that is, foreign equities.
To go over the set weight in a specific category, compared with the relevant index.
Percentage of stocks in the portfolio which are not constituents of the benchmark index or performance comparator.
Option Adjusted Spread
The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option.Back to top
A term used to refer to those Asian countries which form an arc around the Pacific. Those countries include Thailand, Indonesia, the Philippines, Singapore and Malaysia.
Funds aiming to reproduce the performance of a relevant index. This is done by investing in securities in the same proportions as the index and so acting passively (like the index).
Funds aiming to reproduce the performance of a relevant index. This is done by investing in securities in the same proportions as the index and so acting passively (like the index).
In the context of investment management, a group of funds with a similar investment universe or investment objective. Peer group analysis enables investors to compare a fund’s performance relative to its peers.
Pre-set 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.
This classifies performance into sources such as asset allocation, stock selection and currency overlay.
Fees earned by the investment manager which vary with the fund’s performance.
Companies whose function is to measure and analyse the performance of investment funds.
Where funds from different investors are pooled so they can be used to purchase securities in one portfolio.
Is a term used to describe a fixed income approach designed to deliver slightly more than Gilts. It is usually achieved by using derivatives to secure beta (market return) and an actively managed opportunistic satellite to generate alpha (active management return).
A collection of investments belonging to one client or, if pooled funds, managed by one investment manager.
Building a portfolio of securities to achieve the client’s objectives.
The risk associated with a particular portfolio (different from market risk) as the manager tries to meet the performance objectives set by the trustee.
Positive profit surprise
When a company reports earnings that are higher than market analysts expected.
A different word for the fee paid for insurance cover or an option. An alternative definition is the extra paid for an asset above its fair value.
Information about a security which, if released to the public, would cause a change in its quoted market price.
Price/book (P/B) ratio
A financial ratio which divides the market value of a security by its net asset value. The higher, the more expensive the shares look. More suitable for some industries than others.
Price/earnings (P/E) ratio
A financial ratio which divides the market value of a company by the after-tax profits. It is, perhaps, the most common way of valuing shares.
Capital offered by individual or specialised firms for an equity stake in an unquoted company. See also: Alternative investments; Venture capital.
The act of floating a publicly owned company on the stock market, most evident during the 1980s and 1990s in the UK.
An indicator of profitability, calculated as net earnings after taxes divided by revenues. A low figure can show the impact of competition and a company’s pricing strategy.
When a company announces publicly that actual profits for the period are likely to fall below those forecast by the market.
A computer-generated buying and selling programme that is used to trade a number of different shares at the same time.
Proprietary Trading Strategies
These refer to trading strategies employed by a trader dealing in financial instruments with the firm’s own money to make a profit for itself. Proprietary traders may use a variety of arbitrage strategies and electronic market-making.
Provisional median return
A median return is an average measure of all funds in a sample. It is only temporary as this number is given before all information has been collected so the final number may be slightly different.Back to top
The Qualified Foreign Institutional Investor scheme was introduced by China 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. See also: A-Shares.
Analysis which involves subjective assessment of the prospects for a company.
Mathematical or statistical analysis involving measuring purely numerical factors.
A monetary policy tool whereby a central bank actively increases the money supply in an economy in a bid to stimulate economic growth. This is typically implemented through large-scale purchases of financial assets such as government bonds. Quantitative easing was used by countries such as the UK and United States in the wake of the 2008 credit crisis.
Three-monthly periods, usually ending March, June, September and December.
The range of fund performance can be divided into four equal sections (of 25%) called the first, second, third and fourth quartiles. The quarter of funds performing best are in the first quartile.Back to top
An agency that formally evaluates the ability of security issuers to meet their obligations with respect to those securities by assigning an appropriate credit rating. The largest ratings agencies are Standard & Poor’s, Moody’s and Fitch. See also: Credit rating.
Is a term used to describe assets whose value rise with inflation. They are often linked to the economic cycle, for example, property and equities.
Another term for property. Includes residential property such as houses and commercial property such as offices and shops.
This is when the price/earnings ratio of a share rises as a result of improvements in the profit-earning profile or outlook of the company.
Real risk-free rate of return
This is a theoretical measure of the ‘appropriate’ return for a totally risk-free investment.
When securities, including units of a pooled fund, are sold back to the issuer in return for cash.
This yield takes into account the current market price of the bond, but also allows for the change in capital value for the period until redemption. This is effectively the estimated total return on the bond if held until redemption, expressed as an annual yield. This is sometimes called the yield to maturity.
Relative performance/ return
Index or peer group relative investment is an approach designed to deliver better performance than the relevant benchmark/index. It differs from absolute return investing, particularly in weak markets. “Relative performance” can also refer to the performance of a particular investment when compared with the index or peer group. If a UK Equity fund had a return of 6% and the FTSE a 5% return, the relative return would be +1%.
Relaxed monetary stance
See “monetary policy”. A relaxation of monetary policy refers to lower interest rates and less-restricted money supply, typically as a means of stimulative growth.
RPI (Retail Price Index)
This is the most commonly used measure of inflation. The Retail Price Index is an index of the current prices of a representative ‘basket’ of goods. In this way it is possible to compare prices of goods at different times and work out the effect of inflation.
Request for quote (RFQ)
An RFQ is a request to a Market-Maker to make a price on a security. There is no obligation to trade if the price isn’t satisfactory. Barings typically uses this process for Fixed Income and some ETF trading.
Request for streaming (RFS)
RFS allows dealers to show clients more frequently updated rates during a price inquiry, keeping prices even more accurately in line with market movements.
This is an issue of extra shares in a company to raise funds from existing shareholders. The company offers them new shares in proportion to their existing holdings.
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.
Typically referring to the tolerance of an investor towards his or her investments. Risk-averse suggests that the investor has a conservative approach to investments and is concerned that risk is limited.
Rolling 3 year periods
The three years to a particular period of time. Rolling three years to 31 March 2008 refers to the period 31st March 2005 to 31 March 2008.
Rule of twenty
An idea, not commonly used today, that the price/earnings ratio of the market is fair value when it is 20 minus the rate of inflation. That is, with inflation of 2.5%, the price/earnings ratio should be 17.5.
This represents, at any point in time, the effective annual yield paid on a bond or fund expressed as a percentage. It takes the annual interest paid on the bond and divides it by the market price of the bond. This is sometimes known as the current yield.Back to top
A sales trader at a brokerage firm is responsible for taking trading instructions directly from our dealers; placing orders and advising them on market developments. Orders placed through a sales trade rather than executed through trading algorithms may be known as “High Touch”.
A mathematical technique that is used to highlight candidates for inclusion in a portfolio by ranking them on measures such as dividend yield, price/earnings ratio, and so on. This can be a useful technique for concentrating limited research resources on promising stocks.
An instrument representing financial value. They are generally divided into debt securities, or bonds, and equity securities, or shares.
The contribution to investment performance from equity or bond selection.
The conclusion of a deal, whereby title to assets and payment are exchanged. This is largely carried out electronically in the UK today.
The conclusion of a deal, whereby title to assets and payment are exchanged. This is largely carried out electronically in the UK today.
The certificate held by the investor to confirm their ownership of shares the company.
The price at which a single share can be bought or sold.
A measure of the return achieved for each unit of risk taken. It is calculated by taking the risk-free return, typically cash, from the investment return, and dividing the result by the standard deviation of returns.
See “shorting” definition.
A bond with five years or less to run until the debt is paid.
Shorting may be defined as occurring when the investment manager sells something, for example a security, that they do not possess. This is 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.
Where the growth rate of an economy slows to a lower rate.
Companies that usually have a market capitalisation of typically less than US$1 billion. Small capitalisation stocks represent companies that are less well-established than their larger competitors. Market capitalisation is calculated by multiplying the number of outstanding shares by the current market price of a share.
An arrangement between a fund manager and a stockbroker, where the stockbroker pays for additional services (such as software to help the investment process) in return for trading through that particular broker.
A position where assets are enough to cover all liabilities.
A fixed income security issued by a government in support of national spending and denominated in a foreign currency. Sovereign bonds are generally regarded as riskier than government bonds as they are subject to movements in exchange rates. See also Government bond.
Where a manager is limited to a specific area of investment, such as UK equities.
The risks associated with an individual security. Also known as idiosyncratic risk.
The Synthetic Risk and Reward Indicator (SRRI)
The Synthetic Risk and Reward Indicator (SRRI) was defined in 2009 by the Committee of European Securities Regulators (CESR) with the aim of providing investors with a method of assessing a fund's risk. The SRRI measures the volatility of the fund. A higher volatility means there is greater uncertainty about the size of the changes in a fund's value. This means that the price of the fund can change dramatically over a short time period in either direction. A lower volatility means that a fund's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. The SRRI is calculated based on the fund returns over the last 5 years. In the case that a fund is less than 5 years old, the returns of a comparable benchmark is used for the period before the fund was launched.
A tax paid in the UK on purchases of investments, such as property and equities.
A measure of how widely spread are the values in a set of data. When applied to the returns of an investment it is a measure of the volatility, or risk, of the investment. A higher standard deviation indicates that the investment is more risky.
Standard balanced discretionary
A traditional approach to managing funds where the manager invests across different asset classes, allocating them according to the attractiveness and appropriateness of different assets.
Statement of investment principles (SIP)
Is a specific statement, written by the trustees of a pension scheme, stating the basis by which the fund managers are to be selected and how the pension fund is to be invested. When compiling this document, the trustees of a pension scheme are usually assisted by their pension and investment consultant.
The process of selecting which stocks will form the portfolio.
Stockbrokers provide trading services to fund managers. Investors buy or sell from the stockbroker.
Stop-go economic policy
This goes hand in hand with a ‘boom and bust’ economy, that is, from one extreme to the other, most obviously in the UK economy in the 1970s and early 1980s.
These are pre-packaged investment strategies designed to meet the specific needs which cannot be met by standard financial instruments available in the markets. While they vary considerably in nature, they tend to offer a range of outcomes in respect of the return of initial capital invested, which is linked by a pre-set formula to the performance of an index, a combination of indices or other specific factors. Structured products tend to use derivatives to assist in delivering these outcomes. If performance is not within the specified limits the holder could lose some or all of the capital invested.
Sub-investment grade is a term given to bonds/securities which are regarded as carrying a higher risk of default and sensitivity to economic conditions. They are sometimes known as junk bonds. Formally, bonds with a Standard & Poor’s rating of either BB, B, CCC, CC, C, or D are regarded as being sub-investment grade. A bond with a BB-rating, the highest possible sub-investment grade rating, is regarded by Standard & Poor’s as less vulnerable in the near-term to default, but faces major ongoing uncertainties to adverse business, financial, and economic conditions. A B-rated bond is regarded by Standard & Poor’s as more vulnerable to adverse business, financial, and economic conditions, but currently has the capacity to meet financial commitments. A CCC-rated bond is currently vulnerable and dependent on favourable business, financial, and economic conditions to meet financial commitments. A CC-rated bond is currently highly vulnerable. A C-rated bond has had a bankruptcy petition filed or similar action taken against the provider, but payments or financial commitments are continuing. In contrast, a bond with a D-rating is already in default. See also: Credit Rating; Investment Grade.
An investment surplus is where there are more assets than are needed.
The market risk that affects all investment strategies.
A swap is an agreement between two parties to exchange sequences of cash flows for a set period of time. Usually, at the time the contract is initiated, at least one of these series of cash flows is determined by a random or uncertain variable, such as an interest rate, foreign exchange rate, equity price or commodity price.
Secured / Unsecured / Other
Percentage of secured, unsecured, and other assets. Secured assets are debts where a borrower has pledged an asset as collateral.
Spread Duration to Worst
Spread to worst (STW) is the difference between the yield-to-worst of a bond and yield-to-worst of a U.S. Treasury security with a similar durationBack to top
A benchmark tailored to the specific requirements of a fund.
A style of investing that focuses on identifying trends which such as demographic or climate change which may impact upon economies and financial markets.
Working out performance where the timing of cash flows is reflected in the overall return.
Investment decisions based on major economic and political factors rather than the specific circumstances of the individual investment.
The complete return generated by the investment, including income and capital growth.
Looks at the volatility of the active return between the fund and benchmark/index.
A general term given to an electronic venue where investors can come together to buy and sell. Such platforms allow electronic to be carried out by users from any location and are in contrast to the traditional floor trading using open outcry and telephone based trading.
When a country’s physical imports are greater than its exports.
The party that Barings either trades through (on an agency order) or against (in Principal transaction). Every transaction must have a counterpart in order for the transaction to be completed.
A general term given to an electronic venue where investors can come together to buy and sell. Such platforms allow electronic trading to be carried out by users from any location and are in contrast to the traditional floor trading using open outcry and telephone based trading.
The value of shares traded in a specific period as a percentage of the total value of the portfolio.Back to top
UK reporting status
Where a fund has UK reporting status, it means that it comes within the UK reporting tax regime. The effect of this is that shareholders who are resident or ordinarily resident in the UK for tax purposes will generally be liable to capital gains tax in respect of any gain on disposal or redemption of shares. Where UK reporting status is not obtained, any gain would generally be treated as income rather than a capital gain.
The underlying yield reflects the annualised income, net of expenses, of the fund (calculated in accordance with relevant accounting standards) as a percentage of the mid-market unit price of the fund as at the date shown. It is 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.
Refers to performance that is less than the relevant benchmark/index.
A security priced below what is considered to be fair value.
When the proportion of the fund invested in the security is less than in the benchmark/index or other reference point, indicating caution on the part of the investment manager.
The commission (or premium) paid to the underwriters for underwriting a security transaction.
A pooled investment vehicle created under trust laws. Investors buy and sell units in the fund, based on the bid and offer prices set by the investment management firm.
The total number of securities that can be selected within a specified category or class. It can also refer to the total number of firms or companies in a specific field of business.
A sector that is made up of the privatised gas, electricity and water industries. The sector usually excludes telecommunications services, as most large index providers such as MSCI and FTSE classify telecoms separately.Back to top
A statement normally showing a list of client assets, their respective costs and their current market valuation.
Value at risk (VaR)
A technique to analyse variations in performance and to estimate the amount by which a portfolio could underperform based on the historic performance of the constituents of that portfolio.
Value investing is an investment style that focuses on companies where the investment manager considers the market price of the company to be less than its real value. See also: Value Managers; Growth Investing.
Investment managers who invest in underpriced securities, in the belief that they will offer the best long-term reward. This is an example of an investment philosophy.
Capital offered by individual or specialised firms for an equity stake in a growing or developing business.
The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has a high volatility. If the price rarely changes, it is said to have low volatility.
This refers to a trading instruction from the Barings dealer to work an order at a certain percentage of the market volume. It is usually accompanied with other trading instructions depending on movement in the underlying share price.
Volume weighted average price (VWAP)
The ratio of the value traded to total volume traded over a particular time horizon (usually one day). It is a measure of the average price at which a stock is traded over the trading horizon.Back to top
A security which can be traded, that allows the holder to purchase a specific number of shares at a specified date in the future.
Proportion of total funds invested in a specific category, usually with respect to class, sector or country.
Phrase that generalises what is happening to all the economies in the world.
When an investment fund or company no longer operates and closes down.Back to top
A comparison from one year to the next. It is used to work out when a trend may be changing, or when momentum in a certain direction declines.
Income divided by price. It is often referred to in percentage terms.
Yield to maturity
See “Redemption yield”.
The bond/equity yield ratio compares the yields being offered on equities and bonds. A high figure suggests that bonds are starting to become expensive, or that equities are starting to look undervalued.
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.
Years to Maturity
Refers to the remaining life of a debt instrument
Yield to Worst
The yield to worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting. The YTW is calculated by making worst-case scenario assumptions on the issue by calculating the return that would be received if the issuer uses provisions, including prepayments, calls or sinking funds. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.Back to top