Investment glossary

The gain or loss that an investment achieves over a specified period of time, most often expressed as a percentage of invested capital.

An approach to investing that aims to beat the returns from the stock market or specified index, and capital is allocated according to the judgment of the investor.

Any non-traditional asset with economic value that, due to their unconventional nature, are less liquid than traditional assets and may be difficult to value. Examples include art, antiques, hedge funds and venture capital investments.

Anything having tradeable value.

The diversification of investments within a fund or portfolio across a range of different asset classes and geographical regions in accordance with the investment objective.

Category of assets, examples being cash, equities, bonds and their subcategories, as well as tangible assets such as property.

A measure assessing the scale of a company's debt obligations compared with the value of their assets after expenses are covered - a high amount of asset cover indicates a company that is unlikely to default on their obligations.

The combination of asset classes within an investment portfolio or fund. The main asset classes are equities, bonds, property and cash.

A feature of some structured products, in which the investment can automatically mature in advance of the specified maturity date should certain pre-determined market conditions be met.

Unit of measure equal to 1/100th of 1%. For example, 75 basis points = 0.75%.

A market in which security prices are falling, and where widespread negative sentiment often causes the downward trend to be self-sustaining.

A debt instrument in which an investor loans money to an entity, who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity).

A set of bonds offered for sale.

The date at which a loan or bond is to be repaid (also known as redemption).

Selecting stocks based on the attractiveness of a company.

An economic cycle characterised by rapid expansion then sharp contraction of the market.

A market in which security prices are rising, and investors have confidence in ongoing positive returns.

Assets with financial value.

The difference between an asset’s purchase price and its sale price, when the difference is positive (gain) or negative (loss).

The combination of debt and equity used by a firm to finance its assets.

A vehicle in which multiple investors pool their money, which is then invested and managed on their behalf by an investment professional in accordance with the stated aim and policy of the scheme.

An index used to measure inflation, that is meant to be representative of products we typically spend our money on.

A debt instrument in which an investor loans money to a company who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity). A Convertible bond can also be exchanged for predetermined amounts of company shares at specified points throughout its life.

A debt instrument in which an investor loans money to a company who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity). Corporate bonds are often considered to be higher risk than government bonds, and so pay higher coupons.

The other party participating in a transaction.

The risk that the other party in a transaction will default.

The interest paid by the government or company that has raised a loan by selling bonds.

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.

The risk of an individual, company or government defaulting on its debt.

The difference in yield between a corporate bond and a government bond of the same maturity.

An investment’s aggregate gain or loss over a given period, expressed as a percentage.

Investments whose value is highly correlated to the economic cycle. They tend to gain value in a booming economy and lose value in downturns - examples include car makers and manufacturers of luxury goods.

When a borrower does not maintain interest payments or repay the principal sum at maturity.

Risk that a debt holder will not receive interest and full repayment of the loan when due.

Financial instruments whose value and price depend on one or more underlying assets.

Well-established economies with a high degree of industrialisation, standard of living and security.

The practice of investing in a number of different assets, to reduce the impact on the overall portfolio should one or more individual holdings incur a loss.

A share in the profits of the company, that is paid out to shareholders at set times of the year.

Refers to opinion on interest rates and inflation. Doves support monetary policies that keep interest rates low, as they believe that the impact of inflation on an economy will be minimal.

A measure of the sensitivity of a bond or bond fund to changes in interest rates. A high duration indicates greater sensitivity.

The higher the duration, the greater the risk a bond or bond fund will be negatively affected by changes in interest rates.

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.

A charge paid at the beginning of an investment, generally as a percentage of the total amount invested.

Shares of ownership in a company.

A collective investment scheme (fund) that is bought and sold on an exchange and trades much like a stock.

A charge paid when redeeming an investment, generally as a percentage of the total amount invested.

Government policy on taxation, expenditure and borrowing.

The conversion of one currency into another currency, and also refers to the global currency trading market.

An investment whose market value is equal to an investment manager's subjective perception of its value.

See collective investment scheme.

A collective investment scheme that invests solely in other funds, and not directly in equities, bonds, property or other assets. Fund of funds can hold cash, in accordance with their investment policy.

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.

A grouping of 20 major economies (19 countries plus the European Union) that meet on a periodic basis to discuss and coordinate high-level policy, particularly economic.

The level of debt in relation to equity. It is another term for leverage and usually used in financial markets.

Debt instruments issued by the UK government, in which an investor loans money to the government, who in return makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity).

A debt instrument in which an investor loans money to a government, who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity).

A measure of the level of output of the economy, which can provide an indication of whether the economy is shrinking or expanding.

The expected return on a bond at its current price, if held to maturity. GRY is expressed as a percentage and includes all future coupon payments and capital gains or losses.

Refers to opinion on interest rates and inflation. Hawks favour relatively high interest rates to keep inflation in check.

A collective investment scheme that uses sophisticated investment strategies, such as leveraged, long, short or derivative positions.

A method of reducing unnecessary or unintended risk.

A debt instrument in which an investor loans money to a company or government, who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity). High yield bonds are generally issued by companies with a low credit rating, and so give higher returns to compensate investors for the investment's higher level of risk.

A measure of a fund's income return over a specified time period, generally 12 months, expressed as a percentage and net of charges and tax.

The securities, property and other assets that are owned by a person or company.

When one company attempts to acquire another, against the wishes of the target company.

An index represents a particular market or a portion of it, serving as a performance indicator for that market.

A fund management strategy that aims to match the returns from a particular index.

A debt instrument in which an investor loans money to an entity, who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity). The value of the coupons and principal are adjusted in line with a specified index until they mature.

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.

A debt instrument in which an investor loans money to an entity, who makes regular interest payments (coupons) and repays the loan amount (principal) on a pre-defined date (maturity). The value of the coupons and principal are adjusted in line with inflation until they mature.

Bonds 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.

A term used to describe the collection of financial assets including stocks, bonds, property and cash.

A set of stocks or bonds that were released to the public under a single offering.

An entity that sells securities, such as bonds and equities.

Refers to the level of a company's debt in relation to its equity, or to a fund that borrows money or uses derivatives to magnify an investment position.

The process in which the assets of a company are sold off in order to pay its creditors, and then shareholders, after which the company is wound up and ceases to exist.

Ease of access or conversion to cash. Assets are considered liquid if they can be easily bought or sold.

The performance and behaviour of an economy at the regional, national or global level. Macroeconomic factors such as economic output, unemployment, inflation and investment are key indicators of economic performance. Sometimes abbreviated to 'macro'.

See collective investment scheme.

A measure of the total value of shares in a company. It is calculated by multiplying the current share price by the number of shares in issue.

The date at which a loan or bond is to be repaid (also known as redemption).

When two companies formally join together to create a new company.

A central bank's regulation of interest rates and the amount of money in circulation.

The current value of an entity's assets minus its liabilities.

A type of collective investment scheme that trades at a single price (that is directly linked to the value of the fund's underlying investments) and has the ability to adjust the number of its shares in circulation at any given time.

Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a specified future date.

When financial assets are traded directly between two parties, and not through an exchange.

An investment whose market value is greater than an investment manager's subjective perception of its value.

Funds holding a larger proportion of a specific asset/asset type than the comparable index or sector are considered to be 'overweight' in that asset/asset type.

An unrealised change in the market value of an investment - until the investment is sold, the price will continue to fluctuate and so the gain or loss on the investment has not been realised.

Management approach in which capital is allocated according to the stock or sector weightings of an index.

A manager aiming to match the returns from the stock market or specified index/sector, rather than to outperform them.

An item of value that has tangible existence, for example, cash, equipment, inventory, real estate, and including paper assets such as equities and bonds.

A market on which investors purchase securities directly from the issuing company, at issue.

The face value of a bond, which is the amount due back to the investor by the issuer when the bond reaches maturity.

A government monetary policy used to increase the money supply by buying government bonds or other assets from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.

A collective investment scheme that invests directly in property, and whose shares are traded on major exchanges.

The loss or gain of a particular share or fund over a specified time period.

The chance that an investment or its return may be affected by an internal or external factor. Types of risk include: credit risk, political risk, liquidity risk, market risk.

The difference between the return from a 'risk-free' asset, such as cash or government bonds, and the return from an investment in another asset. Higher premiums imply higher risk.

A measure of the amount of risk a client is willing and has the capacity to take with their investments, which partly depends on the time horizon they are looking to invest.

A ratio comparing the expected returns of an investment with the amount of risk undertaken.

The return of a fund or investment relative to the amount of risk involved in producing that return.

Asset notionally carrying no risk of non-payment by the issuer, such as a high-quality government bond or cash.

Refers to assets that investors perceive to be relatively safe, such as AAA-rated government bonds or gold.

A market on which investors purchase securities from other investors, and not directly from the issuing company.

Financial term for a paper asset – usually a share or a bond.

Borrowed money that must be repaid before all other debt, should the borrower go bankrupt.

The owner of shares in a company or fund.

When an investor sells a share that they do not own.

Synonym for government debt.

Investments that provide pre-defined returns based on the performance of an underlying asset over a set period. They are issued by a bank (the counterparty) and comprise a bond and an options package, which will provide the potential upside.

An investment approach that first analyses macroeconomic factors before selecting which companies to invest in.

The term for the gain or loss derived from an investment over a particular period, including both income and capital gains.

Any costs of trading, such as brokerage, clearing and exchange fees, and stamp duty.

An investment whose market value is less than an investment manager's subjective perception of its value.

Funds holding a smaller proportion of a specific asset/asset type than the comparable index or sector are considered to be 'underweight' in that asset/asset type.

A type of collective investment scheme constituted under a trust deed, and the most common legal structure for managed funds in Australia. Unit trusts have the ability to adjust the number of units in circulation at any given time, with the value of those units being directly linked to the value of the fund's underlying investments.

An entity who has made a loan to another party, and does not have specified assets set as collateral against that loan. In the event of bankruptcy, unsecured creditors are paid after secured creditors; because of the extra risk involved, unsecured creditors generally receive a higher interest rate on the loan.

The degree to which a given share, fund, or index rapidly changes. The higher the volatility, the riskier the share tends to be.

An investor who passes one or more eligibility tests e.g. product value, individual wealth, gross income, sophisticated investor etc.

This refers to the interest (coupons) received on a bond and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

The income earned on an investment. Yield refers to the dividends received from shares and is usually expressed annually as a percentage based on the investment's cost, current market value or face value.