Glossary
We appreciate that technical language is often used within the financial services industry. In our glossary below, we explain some of the terms most frequently used.
A
Absolute return
The profit or loss on an investment over a period of time without comparing it to how other investments, measures and/or benchmarks have performed, typically expressed as a percentage.
Active management
Where an investment manager uses their expertise to decide which investments to buy or sell and when.
Asset allocation
The process of deciding what asset classes to invest in, such as investment types, geographical areas or industry sectors, and in what proportion.
B
Basis point
One basis point is 100th of 1%. So 10 basis points (bps) equals 0.10% and 100 bps is 1%.
Bear investor
An investor who sells their shares now with the intention of buying them back later at a lower price.
Bear Market
An extended period of time when share prices fall and investors are pessimistic.
Benchmark
Comparator index for performance purposes.
Bonds
Bonds are interest-paying financial products issued by governments, companies and other institutions when they want to borrow money from investors.
Bottom-up
An investment approach that focuses on analysing individual shares and their fundamental value before consideration of wider economic trends. It is associated with share picking and a more granular analysis of specific investments.
Bull investor
An investor who buys shares now on the expectation prices will rise in the future.
Bull market
An extended period of time when share prices rise and investors are optimistic.
C
Capital markets
Financial markets where individuals, companies, and governments raise and invest funds through the buying and selling of various financial instruments, such as shares and bonds.
Credit spreads
Measures the difference in yields paid on government bonds, viewed as being lower risk, and bonds issued by companies, considered higher risk.
D
Derivatives
Investments whose value is linked to that of an underlying asset such as oil or company shares, or the performance of an index, or other variable factor.
Duration
A measure of how sensitive a bond's price is to changes in interest rates.
E
ESG
An investment approach that takes Environmental, Social and Governance (ESG) factors into account.
Economic cycle
An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern: expansion, peak, contraction, and trough.
Equities
Equities are shares in companies.
F
G
Growth
Growth companies are businesses forecast to achieve strong earnings growth and are often on higher valuations as a result.
H
Headwinds
Factors that challenge the growth or performance of an investment or the overall market. For example, rising interest rates and economic downturns.
Hedging
Used to mitigate or manage risk by making investments that offset potential losses in other investments.
I
Index
A numeric score that represents the performance of a group of assets, such as shares, bonds, or other assets.
Initial Public Offering (IPO)
An initial public offering is when a company lists on a stock exchange for the first time.
Investment grade
Governments, companies and investments rated by a credit rating agency as relatively low risk.
J
K
L
Liquidity
The ease with which an investment can be bought or sold without affecting the price.
Long dated gilts
UK government bonds with an end date of more than 15 years.
M
Market sell off
When an event triggers a large volume of investments to be sold in a short period of time, causing the price of investments to fall rapidly.
Median
The median is the middle value in a set of numbers.
Medium dated gilts
UK government bonds with an end date between five and 15 years.
Mergers & acquisitions (M&A)
Mergers and acquisitions refers to corporate transactions where two companies are combined, for example through one buying the other.
Money market instruments
Usually issued by banks or governments that are a short term loan (less than one year) to the issuer by the buyer.
N
O
P
Passive management
The investment manager aims to track or best represent the performance of a market or benchmark.
Price/earnings multiple
The price/earnings multiple (p/e) is the share price divided by earnings per share. This shows investors how highly the company’s shares are priced in relation to its profits. The p/e multiple is one of the most commonly used measures of stock market value.
Q
R
Relative return
The profit or loss on an investment compared to how other investments, measures and/or benchmarks have performed.
Rolling period
A time period that moves forward continuously, no matter which day you start on.
S
Short-dated gilts
UK government bonds with an end date within five years.
Short-dated bonds
Short-dated bonds are bonds with less than five years until maturity, which is when the capital is due to be repaid.
Sub investment grade
Governments, companies and investments rated by a credit rating agency as relatively high risk.
Systemic risk
A sector of the economy or the financial / banking system failing due to the interconnectedness of institutions, and how the collapse of one firm may cause another to collapse.
T
Top-down
An investment approach that focuses on broad economic trends first, identifying areas of promise, and then focussing on investments within those areas.
U
V
Value
Value companies are those that appear be undervalued at their current share price.
W
X
Y
Yield
The income from an investment, usually stated as a percentage of the value of the investment.
Z