When referring to a portfolio, the capital reflects the net asset value of a fund. More broadly, it can be used to refer to the financial value of an amount invested in a company or an investment portfolio.
Spending on fixed assets such as buildings, machinery, equipment and vehicles in order to increase the capacity or efficiency of a company.
A measure of the funds a bank has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis.
(Beware of the context in which 'carry' is used) one definition is interest income or coupon, a regular interest payment that is paid on a bond. A coupon is described as a percentage of the face value of an investment. For example, if a bond has a face value of £100 and a 5% annual coupon, the bond will pay £5 a year in interest.
Stocks listed on the Shenzhen and Shanghai stock markets.
Managing IT services remotely by buying computing and storing technology from specialised service providers over the internet.
Any property used for commercial purposes. Commercial property has three main sectors: retail, office and industrial. It excludes residential property.
A physical good such as oil, gold or wheat. The sale and purchase of commodities in financial markets is usually carried out through futures contracts.
Consumer price index (CPI)
A measure that examines the price change of a basket of consumer goods and services over time. It is used to estimate ‘inflation’. Headline CPI or inflation is a calculation of total inflation in an economy, and includes items such as food and energy, in which prices tend to be more prone to change (volatile). Core CPI or inflation is a measure of long-run inflation and excludes transitory/volatile items such as food and energy.
Contract for difference (CFD)
A form of derivative between two parties. Profit and loss depends on the changing price of an underlying security, with the difference paid in cash. It provides exposure to all the benefits and risks of owning a security, but with neither party needing to actually own it.
An investment style that goes against market consensus or a conventional approach. Contrarian investors believe that crowd behaviour can lead to mispricing opportunities in financial markets.
A bond issued by a company.
How far the price movements of two variables (eg, equity or fund returns) match each other in their direction. If variables have a correlation of +1, then they move in the same direction. If they have a correlation of -1, they move in opposite directions. A figure near zero suggests a weak or non-existent relationship between the two variables.
A regular interest payment that is paid on a bond. It is described as a percentage of the face value of an investment. For example, if a bond has a face value of £100 and a 5% annual coupon, the bond will pay £5 a year in interest.
Refers to bonds within fixed income markets where the borrower is not a sovereign or government entity. Typically, the borrower will be a company or an individual, and the borrowings will be in the form of bonds, loans or other fixed interest asset classes.
Credit default swap (CDS)
A form of derivative between two parties, designed to transfer the credit risk of a bond. The buyer of the swap makes regular payments to the seller. In return, the seller agrees to pay off the underlying debt if there is a default on the bond. A CDS is considered insurance against non-payment and is also a tradable security. This allows a fund manager to take positions on a particular issuer or index, without owning the underlying security or securities.
A marketplace for investment in corporate bonds and associated derivatives.
A score assigned to a borrower, based on their creditworthiness. It may apply to a government or company, or to one of their individual debts or financial obligations. An entity issuing investment-grade bonds would typically have a higher credit rating than one issuing high-yield bonds. The rating is usually given by credit rating agencies, such as Standard & Poor’s or Fitch, which use standardised scores such as ‘AAA’ (a high credit rating) or ‘B-’ (a low credit rating). Moody's, another well known credit rating agency, uses a slightly different format with Aaa (a high credit rating) and B3 (a low credit rating).
The risk that a borrower will default on its contractual obligations to investors, by failing to make the required debt payments.
The difference in the yield of corporate bonds over equivalent government bonds.
A transaction that aims to protect the value of a position from unwanted moves in foreign exchange rates. This is done by using derivatives.
Current account deficit
Where the value of goods and services that is imported by a country exceeds the value of the goods and services that it exports.
Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.