We believe a glossary is key for any client trying to navigate through the range of complex terms and jargon in our industry.
A change in value of an investment measured in absolute, not relative, terms. An absolute return fund aims to generate positive returns in all market conditions over a set period of time, for example three years or over a market cycle.
Interest that has been earned but not yet paid.
Approach to investment management which aims to outperform rather than match the return of a particular market index or benchmark.
The additional return generated by manager skill as opposed to general market movements. Historical alpha measures the returns achieved by active management over time.
Investments that do not fit into traditional categories of equities, bonds and cash, examples are private equity, venture capital, hedge funds, absolute return funds and property.
A security where cash flows issued to investors includes both the interest payments and principal re-payments
An annuity converts a lump sum, usually from a retirement fund, into a regular, guaranteed income that will last for the rest of retiree’s life.
Profiting from differences in price when the same security, currency or commodity is traded on two or more markets. By taking advantage of monetary disparities in prices between markets, arbitrageurs perform the economic function of making these markets trade more efficiently.
The distribution of investments across categories of assets, such as equities, bonds and cash. Asset allocation affects both risk and return and is a central concept in financial planning and investment management. See also strategic asset allocation and tactical asset allocation.
Category of assets, for example, equities, bonds, property and cash.
Asset-Backed Security (ABS)
Bonds or notes backed by a pool of assets, such as car loans or credit card receivables
The comparison of projections of the future assets and liabilities of a particular pension scheme in order to gauge the suitability of various investment policies.
Decomposing the return achieved by a portfolio manager into its constituent parts (for example, asset allocation and stock selection) to show where value was added and lost.