The total return of a portfolio, as opposed to its relative return against a
benchmark. It is measured as a gain or loss, and stated as a percentage of a
portfolio's total value.
An investment approach where a fund manager actively takes decisions about which and what
proportion of investments to hold, often with a goal of outperforming a specific
index. It relies on a fund manager’s investment skill. The opposite of passive
This measures how much a portfolio's holdings differ from its benchmark
holdings. For example, a portfolio with an active share of 60% indicates that 60% of its holdings
differ from its benchmark, while the remaining 40% mirror the benchmark.
Alpha is the difference between a portfolio's return and its benchmark’s
return after adjusting for the level of risk taken. A positive alpha suggests that a portfolio has
delivered a superior return given the risk taken.
An investment that is not included among the traditional asset classes of equities, bonds or cash.
Alternative investments include property, hedge funds, commodities, private equity and
An investment that is not included among the traditional asset classes of equities,
bonds or cash. Alternative investments include property, hedge funds,
commodities, private equity and infrastructure.
A term coined by John Maynard Keynes to refer to the emotional mindsets of investors and
consumers, where confidence, or lack of it, can drive or hamper economic growth.
The allocation of a portfolio according to an asset class, sector, geographical region, or
type of security.
Asset-backed securities (ABS)
A financial security which is ‘backed’ with assets such as loans, credit card debts or
leases. They give investors the opportunity to invest in a wide variety of income-generating
Autonomous driving (ABS)
Aka self-driving; where a vehicle is driven to a specific target in real traffic withoutintervention of
a human driver.
A financial statement that summarises a company's assets, liabilities and shareholders'
equity at a particular point in time. Each segment gives investors an idea as to what
the company owns and owes, as well as the amount invested by shareholders. It is called a
balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.
Balance sheet strength
A company's financial position. See also: balance sheet.
An investment strategy usually referring to a fixed income portfolio of half in long-term bonds
and half in very short-term bonds. The aim is to achieve improved risk-adjusted returns.
Barriers to entry
Factors hindering the ease of entering of an industry or business area such as high start-up costs,
patents, brand loyalty etc.
A financial market in which the prices of securities are falling. A generally accepted
definition is a fall of 20% or more in an index over at least a two-month period. The
opposite of a bull market.
A standard against which a portfolio's performance can be measured. For example,
the performance of a UK equity fund may be benchmarked against a market index
such as the FTSE 100, which represents the 100 largest companies listed on the London Stock
Exchange. A benchmark is often called an index.
This measures a portfolio’s (or security’s) relationship with the overall
market or any chosen benchmark. The benchmark always has a beta of 1. A portfolio
with a beta of 1 means that if the market rises 10%, so should the portfolio. A portfolio with a beta
of more than 1 will be expected to move more than the market, but in the same direction. A beta
of 0 means the portfolio’s returns are not linked at all to the market returns. A negative beta
means the investment should move in the opposite direction to the market.
Blue chip stocks
Stocks in a widely known, well-established, and financially stable company, with typically a long
record of reliable and stable growth.
A debt security issued by a company or a government, used as a way of raising money. The
investor buying the bond is effectively lending money to the issuer of the bond. Bonds offer a
return to investors in the form of fixed periodic payments, and the eventual return at maturity of
the original money invested – the par value. Because of their fixed periodic interest payments,
they are also often called fixed income instruments.
An equity perceived to pay safe and predictable income with low
volatility – characteristics that are more commonly associated with bonds.
They are typically drawn from the utility, consumer staple and pharmaceutical sectors. They might
be added to a portfolio to imitate bonds, hence their name.
The level of income on a security, typically expressed as a percentage rate. Note, lower bond
yields mean higher prices and vice versa.
Value of an asset is its value on a company's balance sheet; this may differ from its market value.
Bottom-up fund managers build portfolios by focusing on the analysis of individual
securities, in order to identify the best opportunities in their industry or
They may also consider economic and asset allocation issues, known as top-
down factors, but these are not of primary importance.
A financial market in which the prices of securities are rising, especially over a long
time. The opposite of a bear market.
Buy and hold
An investment strategy where a long-term view is taken, regardless of short-term fluctuations in
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 defintion 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 goods and services over time. It is used
to estimate ‘inflation’. Headline CPI or inflation is a calculation of total inflation in an economy,
which includes items such as food and energy, whose 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
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
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.