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Glossary of Financial Terms


Alpha is a measure of a fund's over or under performance compared to its benchmark.  It represents the return of the fund when the benchmark is assumed to have a return of zero.  It shows the extra value that the manager's activities seem to have contributed.  If the Alpha is 5, the fund has outperformed its benchmark by 5% and the greater the Alpha, the greater the out performance.

Alternative Assets

Includes private real estate, public real estate, venture capital, non-venture private equity, hedge funds, distressed securities, oil and gas partnerships, event arbitrage, general arbitrage, managed funds, commodities, timber and other.

American Stock Exchange

AMEX. The second-largest stock exchange in the U.S., after the New York Stock Exchange (NYSE). In general, the listing rules are a little more lenient than those of the NYSE, and thus the AMEX has a larger representation of stocks and bonds issued by smaller companies than the NYSE. Some index options and interest rate options trading also occurs on the AMEX. The AMEX started as an alternative to the NYSE. It originated when brokers began meeting on the curb outside the NYSE in order to trade stocks that failed to meet the Big Board's stringent listing requirements, but the AMEX now has its own trading floor. In 1998 the parent company of the NASDAQ purchased the AMEX and combined their markets, although the two continue to operate separately. also called The Curb.

Annual Rate of Return

There are several ways of calculating this. The most commonly used methodologies reflect the compounding effect of each period's increase or decrease from the previous period.

Annual Percentage Rate (APR)

The APR is designed to measure the "true cost of a loan". The aim is to create a level playing field for lenders preventing them from advertising a low rate and hiding fees. In the case of a mortgage the APR should reflect the yearly cost of a mortgage, including interest, mortgage insurance, and the origination fee, expressed as a percentage.

Annual Premium Equivalent

Calculated as regular premiums plus 10% of single premiums.


A financial transaction or strategy that seeks to profit from a price differential perceived with respect to related or correlated instruments in different markets and typically involves the simultaneous purchase of an instrument in one market and the sale of the same or related instrument in another market.

Asset Allocation

Apportioning of investment funds among categories of assets such as cash equivalents, stock, fixedincome investments, alternative investments such as hedge funds and managed futures funds, and tangible assets like real estate, precious metals and collectibles.

Average Monthly Gain

The average of all the profitable months of the fund.

Average Monthly Loss

The average of all the negative months of the fund.

Average Monthly Return

The average of all the monthly performance numbers of the fund.

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Basis Point

A basis point is one one-hundredth of a percent i.e. 50 basis points or "bps" is 0.5%.

Bear / Bear Market

Bear is a term describing an investor who thinks that a market will decline. The term also refers to a short position held by a market maker. A Bear Market is a market where prices are falling over an extended period.


A stock or bond that is widely believed to be an indicator of the overall market's condition. Also known as Barometer stock.


Beta is a measure of a fund's volatility compared to its benchmark, or how sensitive it is to market movements. A fund with a Beta close to 1 means that the fund will move generally in line with the benchmark.  Higher than 1 and the fund is more volatile than the benchmark, so that with a Beta of 1.5, say, the fund will be expected to rise or fall 1.5 points for every 1 point of benchmark movement. If this Beta is an advantage in a rising market – a 15% gain for every 10% rise in the benchmark –the reverse is true when markets fall.  This is when managers will look for Betas below 1, so that in a down market the fund will not perform as badly as its benchmark.

Bid Price

The price at which an investor may sell units of a fund back to the fund manager. It is also the price at which a market maker will buy shares.

Blue Chips

Large, continuously well performing stock, presumed to be among the safer investments on an exchange.


A debt investment, with which the investor loans money to an entity (company or government) that
borrows the funds for a defined period of time at a specified interest rate. The indebted entity issues investors a certificate, or bond, that states the interest rate (coupon rate) that will be paid and when the loaned funds are to be returned (maturity date). Interest on bonds is usually
paid every six months (semi-annually).

Bond Rating Codes




Highest quality



High quality



Upper medium quality



Medium grade



Somewhat speculative



Low grade, speculative



Low grade, default possible



Low grade, partial recovery possible



Default, recovery unlikely



Bottom up Investing

An approach to investing which seeks to identify well performing individual securities before considering the impact of economic trends.


A term used to refer to the combination of Brazil, Russia, India and China. General consensus is that the term was first prominently used in a thesis of the Goldman Sachs Investment Bank. The main point of this 2003 paper was to argue that the economies of the BRICs are rapidly developing and by the year 2050 will eclipse most of the current richest countries of the world. Due to the popularity of the Goldman
Sachs thesis, "BRIC" and "BRIMC" (M for Mexico), these terms are also extended to "BRICS" (S for South Africa) and "BRICKET" (including Eastern Europe and Turkey) and have become more generic terms to refer to these emerging markets.

Bull / Bull Market

An investor who believes that the market is likely to rise. A Bull Market is a market where prices are rising over an extended period.

Bulldog Bond

A sterling denominated bond that is issued in London by a company that is not British. These sterling bonds are referred to as bulldog bonds as the bulldog is a national symbol of England.

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Child Trust Fund

A Child Trust Fund is a savings and investment account for children. Children born on or after 1st September 2002 will receive a £250 voucher to start their account. The account belongs to the child and can't be touched until they turn 18, so that children have some money behind them to start their adult life. Payments or contributions can be made up to a maximum of £1,200 per 12 month period (starting on the birthday of the child), excluding the voucher amount. Interest and capital growth will be earned tax-free. Additional deposits can be made by parents, grandparents or anyone else.

Closed-end Fund

Type of fund that has a fixed number of shares or units. Unlike open-ended mutual funds, closed-end funds do not stand ready to issue and redeem shares on a continuous basis.


A contract that protects the holder from a rise or fall in interest rates or some other underlying security above or below certain fixed points. The contract offers the investor protection from interest rate moves outside of an expected range.

Constant Proportion Portfolio Insurance CPPI

Strategy that basically buys shares as they rise and sells shares as they fall. To implement a CPPI strategy, the investor selects a floor below which the portfolio value is not allowed to fall. The floor increases in value at the rate of return on cash. If you think of the difference between the assets and floor as a "cushion", then the CPPI decision rule is to simply keep the exposure to shares a constant multiple of the cushion.

Consumer Discretionary Sector

The array of businesses included in the Consumer Discretionary Sector are categorized into five industry groups. They are: Automobiles and Components; Consumer Durables and Apparel; Hotels, Restaurants and Leisure; Media; and Retailing.

Consumer Staples

The industries that manufacture and sell food/beverages, tobacco, prescription drugs and household products. Proctor and Gamble would be considered a consumer staple company because many of its products are household and food related.

Convertible Arbitrage

This is an investment strategy that involves taking a long position on a convertible security and a short position in its converting common stock. This strategy attempts to exploit profits when there is a pricing error made in the conversion factor of the convertible security.

Convertible Bond

A bond that can be exchanged, at the option of the holder, for a specific number of shares of the company's preferred stock or common stock. Convertibility affects the performance of the bond in certain ways. First and foremost, convertible bonds tend to have lower interest rates than nonconvertibles because they also accrue value as the price of the underlying stock rises. In this way, convertible bonds offer some of the benefits of both stocks and bonds. Convertibles earn interest even when the stock is trading down or sideways, but when the stock prices rise, the value of the convertible increases. Therefore, convertibles can offer protection against a decline in stock price. Because they are sold at a premium over the price of the stock, convertibles should be expected to earn that premium back in the first three or four years after purchase.

Core Fund

Fund that takes a middle of the road approach to generate returns for shareholders. These funds are generally structured in two ways. One strategy is to combine stocks and bonds (and possible income trusts) into a single fund to achieve a steady return and improved asset allocation. The other approach is to combine growth stocks and value stocks to diversify the risk from the typical ups and downs of
markets. This type of fund can also be called a blend fund since it can show characteristics of a pure growth fund or a pure value fund. Either way, a core fund is focused to producing long-term results.

Corporate Bonds

Corporate Bonds are similar to gilts but are a form of borrowing by companies rather than Governments. Let's say Astra Zeneca wished to borrow a billion pounds for research and development. They would initially approach their brokers who would review the strength of Astra Zeneca versus the Government to assess what is a reasonable "risk premium". A secure company might be able to borrow money at 1 or 2 percentage points above the gilt rate and a very insecure company may have to pay 10 percentage points above the Government rate or in some cases substantially more. Companies' security is generally graded from AAA to no rating, the less secure debt being known in the UK as "High Yield", or as it is more accurately described by Americans as "Junk Bonds". So with Corporate Bonds the short term returns will vary in line with interest rates as they do with gilts, but also in line with the perceived strength of the company.


A standardised measure of the relative movement between two variables, such as the price of a fund and an index. The degree of correlation between two variables is measured on a scale of –1 to +1. If two variables move up or down together, they are positively correlated. If they tend to move in opposite directions, they are negatively correlated.


Denotes the rate of interest on a fixed interest security. A 10 % coupon pays interest of 10 % a year on the nominal value of the stock.

Cyclical Stock

The stock of a company which is sensitive to business cycles and whose performance is strongly tied to the overall economy. Cyclical companies tend to make products or provide services that are in lower demand during downturns in the economy and higher demand during upswings. Examples include the automobile, steel, and housing industries. The stock price of a cyclical company will often rise just before an economic upturn begins, and fall just before a downturn begins. Investors in cyclical stocks try to make the largest gains by buying the stock at the bottom of a business cycle, just before a turnaround begins. Opposite of defensive stock.

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A loan raised by a company, paying a fixed rate of interest and secured on the assets of the company.

Defensive Stock

A stock that tends to remain stable under difficult economic conditions. Defensive stocks include food, tobacco, oil, and utilities. These stocks hold up in hard times because demand does not decrease as dramatically as it may in other sectors. Defensive stocks tend to lag behind the rest of the market during economic expansion because demand does not increase as dramatically in an upswing.


The rate at which the price of an option changes in response to a move in the price of the underlying security. If an option's delta is 0.5 (out of a maximum of 1), a $2 move in the price of the underlying will produce a $1 move in the option.

Delta Hedge

A hedging position that causes a portfolio to be delta neutral.


Financial contracts whose value is tied to an underlying asset. Derivatives include futures and options.


When a security is selling below its normal market price, opposite of premium.

Distressed Securities

A distressed security is a security of a company which is currently in default, bankruptcy, financial
distress or a turnaround situation.

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Efficient Frontier

A line created from the risk-reward graph, comprised of optimal portfolios. The optimal portfolios plotted along the curve have the highest expected return possible for the given amount of risk.


EFTA – European Fair Trade Association

A network of 11 Fair Trade organisations in nine European countries which import Fair Trade products from some 400 economically disadvantaged producer groups in Africa, Asia and Latin America. EFTA's members are based in Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Switzerland and the United Kingdom.

Embedded Value EV

A method of accounting used by life insurance business. The embedded value is the sum of the net assets of the insurance business under conventional accounting and the present value of the in-force business based on estimates of future cash flows and conservative assumptions about for example, mortality, persistence and expenses. Accounts users prefer this method because it gives a separate indication of new business profitability, a key performance indicator for a life insurer.

Emerging Markets

Typically includes markets within countries that have an underdeveloped or developing infrastructure with significant potential for economic growth and increased capital market participation for foreign investors. These countries generally possess some of the following characteristics; per capita GNP less than $9000, recent economic liberalisation, debt ratings below investment grade, recent liberalisation of the political system and non membership of the Organisation of Economic Cooperation and Development. Because many emerging countries do not allow short selling or offer viable futures or other derivatives products with which to hedge, emerging market investing entails investing in geographic regions that have underdeveloped capital markets and exhibit high growth rates and high rates of inflation. Investing in emerging markets can be very volatile and may also involve currency risk, political risk and liquidity risk. Generally a long-only investment strategy.

Emerging Markets Debt

Debt instruments of emerging market countries. Most bonds are US Dollar denominated and a majority of secondary market trading is in Brady bonds.


Ownership positions in companies that can be traded in public markets. Often produce current income which is paid in the form of quarterly dividends. In the event of the company going bankrupt equity holders' claims are subordinate to the claims of preferred stockholders and bondholders.

Equity Hedge

Also known as long / short equity, combines core long holdings of equities with short sales of stock or stock index options. Equity hedge portfolios may be anywhere from net long to net short depending on market conditions. Equity hedge managers generally increase net long exposure in bull markets and decrease net long exposure or are even net short in a bear market.

Equity Market Neutral

This investment strategy is designed to exploit equity market inefficiencies and usually involves being simultaneously long and short equity portfolios of the same size within a country. Market neutral portfolios are designed to be either beta or currency neutral or both. Attempts are often made to control industry, sector and market capitalisation exposures.

Equity Risk

The risk of owning stock or having some other form of ownership interest.

Ethical Investing

Choosing to invest in companies that operate ethically, provide social benefits, and are sensitive to the environment. Also called socially conscious investing.


European Union. The economic association of over a dozen European countries which seek to create a unified, barrier-free market for products and services throughout the continent. The majority of countries share a common currency with a unified authority over that currency. Notable exceptions to the common currency are the UK, Sweden, Norway, Denmark.


A bond issued and traded outside the country whose currency it is denominated in, and outside the regulations of a single country; usually a bond issued by a non-European company for sale in Europe. Interest is paid gross.

Eurozone or Euroland

The collective group of countries which use the Euro as their common currency.

Event Driven Investing

Investment strategy seeking to identify and exploit pricing inefficiencies that have been caused by some sort of corporate event such as a merger, spin-off, distressed situation or recapitalisation.

Exit Fee

A fee paid to redeem an investment. It is a charge levied for cashing in a fund's capital.


The condition of being subjected to a source of risk.

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Fonds Commun de Placement. FCPs are a common fund structure in Luxembourg. In contrast to SICAV, they are not companies, but are organised as co-ownerships and must be managed by a fund management company.

Feeder Fund

A fund which invests only in another fund. The feeder fund may be a different currency to the main fund and may be used to channel cash in to the main fund for a different currency class.

Fixed Interest

The term fixed interest is often used by banks and building societies relating to an account that pays a set rate of interest for a set time period.  This type of investment is capital secure and the returns are known at outset. However, fixed interest within the investment world is a completely different concept.  It is used to describe funds that invest in Government Gilts and Corporate Bond securities.

Fixed Income Arbitrage

Investment strategy that seeks to exploit pricing inefficiencies in fixed income securities and their derivative instruments. Typical investment is long a fixed income security or related instrument that is perceived to be undervalued and short a similar related fixed income security or related instrument. Often highly leveraged.

Floating Rate

Any interest rate that changes on a periodic basis. The change is usually tied to movement of an outside indicator, such as the Bank of England Base Rate. Movement above or below certain levels is often prevented by a predetermined floor and ceiling for a given rate. For example, you might see a rate set at "base plus 2%". This means that the rate on the loan will always be 2% higher than the base rate, which changes regularly to take into account changes in the inflation rate. For an individual taking out a loan when rates are low, a fixed rate loan would allow him or her to "lock in" the low rates and not be concerned with fluctuations. On the other hand, if interest rates were historically high at the time of the loan, he or she would benefit from a floating rate loan, because as the prime rate fell to historically normal levels, the rate on the loan would decrease. Also called adjustable rate.


A contract that protects the holder against a decline in interest rates or prices below a certain point.


An agreement to execute a transaction at some time in the future. In the foreign exchange market this is a tailor made deal where an investor agrees to buy or sell an amount of currency at a given date.

Forward Rate Agreement (FRA)

A type of forward contract that is linked to interest rates.

FTSE 100

The Financial Times Stock Exchange 100 stock index, a market cap weighted index of stocks traded on the London Stock Exchange. Similar to the S&P 500 in the United States.

Fund of Funds

An investment vehicle that invests in more than one fund. Portfolio will typically diversify across a variety of investment managers, investment strategies and subcategories. Provides investors with access to managers with higher minimums than individuals might otherwise afford.

Funds under Management

Total amount of funds managed by an entity, excluding

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The effect that borrowing has on the equity capital of a company or the asset value of a fund. If the assets bought with funds borrowed appreciate in value, the excess of value over funds borrowed will accrue to the shareholder, thus augmenting, or gearing up the value of their investment.

Geographic Spread

The distribution in a fund's portfolio over different parts of the world, either by countries or larger areas.

Gilt-Edged Securities

Stocks and shares issued and guaranteed by the British government to raise funds and traded on the Stock Exchange. A relatively risk-free investment, gilts bear fixed interest and are usually redeemable on a specified date. The term is now used generally to describe securities of the highest value. According to the redemption date, gilts are described as short (up to five years), medium, or long (15
years or more).


Gilts are effectively Government borrowing.  When the Chancellor does not have sufficient income to meet his expenditure, then the Government will often borrow money in the form of gilts.  These can be for a variety of different terms, paying a range of interest rates.
A typical example would be a ten year gilt which may pay, say, 5% income.  This is the most secure investment you could buy, as you know the rate of return and you know when you will receive your capital back.  The UK Government has never defaulted on a gilt.
If however you wanted to access your money before maturity then you would have to sell your gilt on the open market. Let's say you were trying to sell your gilt after one year.  In order to obtain a value any potential purchaser will look at the term remaining on your gilt and the interest rate promised, and compare this to new gilts being launched at the time.  If the Government was then launching a new gilt over a nine year time period, and promising to pay 6% per annum, then clearly nobody is going to want to pay the same amount of money for your gilt which is offering a lower interest rate.
They would probably therefore offer at least 9% less than you originally paid for it to reflect the 1% difference in income over the nine years of the remaining term. So whilst you had set out to achieve guaranteed returns, if you sell a gilt before maturity you could potentially make a capital loss on it, in this instance a loss of 9% over the year.
However, if you decide to keep the gilt until its maturity you will still receive all of your interest and the capital back.  Having said this, your valuation each year will vary depending on market conditions. 

GNMA (Ginnie Mae)

Government National Mortgage Association. A U.S. Government-owned agency which buys mortgages from lending institutions, securitizes them, and then sells them to investors. Because the payments to investors are guaranteed by the full faith and credit of the U.S. Government, they return slightly less interest than other mortgage-backed securities.

Growth Stocks

Stock of a company which is growing earnings and/or revenue faster than its industry or the overall market. Such companies usually pay little or no dividends, preferring to use the income instead to finance further expansion.

Growth Orientated Portfolios

Dominant theme is growth in revenues, earnings and market share. Many of these portfolios are hedged to mitigate against declines in the overall market.

Global Macro

The investment strategy is based on shifts in global economies. Derivatives are often used to speculate on currency and interest rate movements.

Guided Architecture

In relation to funds, for example FPIL Premier policyholders may only go into the FPIL mirror fund range – this is guided architecture. In contrast to FPIL Reserve policyholders who may choose any security – open architecture.

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An investor who has a negative view towards inflation and its effects on markets. Hawkish investors prefer higher interest rates in order to maintain reduced inflation.


Any transaction with the objective of limiting exposure to risk such as changes in exchange rates or prices.

Hedge Fund

A pooled investment vehicle that is privately organised, administered by investment managementprofessionals and generally not widely available to the general public. Many hedge funds share a number of characteristics; they hold long and short positions, use leverage to enhance returns, pay performance or incentive fees to their managers, have high minimum investment requirements and target absolute returns. Generally, hedge funds are not constrained by legal limitations on their investment discretion and can adopt a variety of trading strategies. The hedge fund manager often has its own capital (or that of its principals) invested in the hedge fund it manages.


Hedge fund managers while taking a position may encourage other investors to follow this trend.

High Conviction Stock Picking

A typical portfolio is not constrained by benchmarks, allowing the manager to pursue an approach where a smaller number of stocks are chosen that may bear little or no resemblance to the consensus view. i.e the manager's conviction.

High Water Mark

The assurance that a fund only takes fees on profits actually earned by an individual investment. For example, a £10 million investment is made in year one and the fund declines by 50%, leaving £5 million in the fund. In year two, the fund returns 100% bringing the investment value back to £10 million. If a fund has a high water mark it will not take incentive fees on the return in year two since the
investment has never grown. The fund will only take incentive fees if the investment grows above the initial level of £10 million.

High-Yield Bond

Often called junk bonds, these are low grade fixed income securities of companies that show significant upside potential. The bond has to pay a high yield due to significant credit risk.

Hurdle Rate

The minimum investment return a fund must exceed before a performance-based incentive fee can be taken. For example if a fund has a hurdle rate of 10% and the fund returned 18% for the year, the fund will only take incentive fees on the 8 percentage points above the hurdle rate.

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An arithmetic mean of selected stocks intended to represent the behaviour of the market or some component of it. One example is the FTSE 100 which adds the current prices of the one hundred FTSE 100 stocks and divides the results by a pre-determined number, the divisor.

Index Funds

A fund that attempts to achieve a performance similar to that stated in an index. The purpose of this fund is to realise an investment return at least equal to the broad market covered by the indices while reducing management costs.

Index Linked Gilt

A gilt, the interest and capital of which change in line with the Retail Price Index.

In the Money

A condition where an option has a positive intrinsic value.

Intrinsic Value

A component of the market value of an option. If the strike price of a call option is cheaper than the prevailing market price, then the option has a positive intrinsic value, and is "in the money".

Investment Grade

Something classified as investment grade is, by implication, medium to high quality.

1) In the case of a stock, a firm that has a strong balance sheet, considerable capitalization, and is
recognized as a leader in its industry.

2) In the case of fixed income, a bond with a rating of BBB or higher.

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January Effect

Tendency of US stock markets to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise. Although the January Effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.

Junk Bond

A bond that pays a high yield due to significant credit risk

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When investors borrow funds to increase the amount they have invested in a particular position, they use leverage. Sometimes managers use leverage to enable them to put on new positions without having to take off other positions prematurely. Managers who target very small price discrepancies or spreads will often use leverage to magnify the returns from these discrepancies. Leverage both magnifies the risk of the strategy as well as creates risk by giving the lender power over the disposition of the investment portfolio. This may occur in the form of increased margin requirements or adverse market shifts, forcing a partial or complete liquidation of the portfolio.

The amount of leverage used by the fund is commonly expressed as a percentage of the fund. For example if the fund has £1 million and borrows another £2 million to bring the total invested to £3 million, then the fund is leveraged 200%

Life Cycle Funds

Life-cycle funds are the closest thing the industry has to a maintenance-free retirement fund. Life-cycle funds, also referred to as "age-based funds" or "target-date funds", are a special breed of the balanced fund. They are a type of fund of funds structured between equity and fixed income. But the distinguishing feature of the life-cycle fund is that its overall asset allocation automatically adjusts to become more conservative as your expected retirement date approaches. While life-cycle funds have been around for a while, they have been gaining popularity.


London Inter Bank Offered Rate.


1) The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity.

2) The ability to convert an asset to cash quickly.

Investing in illiquid assets is riskier because there might not be a way for you to get your money out of the investment. Examples of assets with good liquidity include blue chip common stock and those
assets in the money market. A fund with good liquidity would be characterised by having enough units outstanding to allow large
transactions without a substantial change in price.

Liquidity Risk

Risk from a lack of liquidity, ie an investor having difficulty getting their money out of an investment.

Listed Security

Stock or bond that has been accepted for trading by an organised and registered securities exchange. Advantages of being listed are an orderly market place, more liquidity, fair price determination, accurate and continuous reporting on sales and quotations, information on listed companies and strict regulations for the protection of securities holders.

Lock Up / Lock In

Time period during which an initial investment cannot be redeemed.

Long Position

Holding a positive amount of an asset (or an asset underlying a derivative instrument)

Long / Short Hedged

Also described as the Jones Model. Manager buys securities he believes will go up in price and sells short securities he believes will decline in price. Manager will be either net long or net short and may change the net position frequently. For example a manager may be 60% long and 100% short, giving him a market exposure of 40% net short. The basic belief behind this strategy is that it will enhance the manager's stock picking ability and protect investors in all market conditions.

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The field of economics that studies the behaviour of the economy as a whole. Macroeconomics looks at economy-wide phenomena such as changes in unemployment, national income, rate of growth, and price levels.

Managed Accounts

Accounts of individual investors which are managed individually by an investment manager. The minimum size is usually in excess of £3 million.

Managed Futures

An approach to fund management that uses positions in government securities, futures contracts, options on futures contracts and foreign exchange in a portfolio. Some managers specialise in physical commodity futures but most find they must trade a variety of financial and non-financial contracts if they have considerable assets under management.

Management Fee

The fees taken by the manager on the entire asset level of the investment. For example, if at the end of the period the investment is valued at £1 million and the management fee is 1.2%, then the fee would be £12,000.


The amount of assets that must be deposited in a margin account in order to secure a portion of a party's obligations under a contract. For example, to buy or sell an exchange traded futures contract, a party must post a specified amount that is determined by the exchange, referred to as initial margin. In addition, a party will be required to post variation margin if the futures contracts change in value. Margin is also required in connection with the purchase and sale of securities where the full purchase price is not paid up front or the securities sold are not owned by the seller.

Market Maker

An Exchange member firm that is obliged to make a continuous two way price, that is to offer to buy and sell securities in which it is registered throughout the mandatory quote period.

Market Neutral Investing

An investment strategy that aims to produce almost the same profit regardless of market circumstances,
often by taking a combination of long and short positions. This approach relies on the manager's ability
to make money through relative valuation analysis, rather than through market direction forecasting. The
strategy attempts to eliminate market risk and be profitable in any market condition.

Market Risk

Risk from changes in market prices

Market Timing

1) An accepted practice of allocating assets among investments by switching into investments that appear to be beginning an up trend, and switching out of investments that appear to be starting a downtrend.

2) An increasingly unacceptable / illegal practice of undertaking frequent or large transactions in mutual funds. Especially where there is a time difference between the close of the relevant markets that the fund invests in and the valuation of the fund. ie a Far East fund that is valued the next day in the UK.

Market Value

The value at which an asset trades, or would trade in the market.

Mark to Market

When the value of securities in a portfolio are updated to reflect the changes that have occurred due to the movement of the underlying market. The security will then be valued at its current market price.

Maximum Draw Down

The largest loss suffered by a security or fund, peak to trough, over a given period, usually one month.

Merger Arbitrage

Sometimes called Risk Arbitrage, involves investment in event-driven situations such as leveraged buy outs, mergers and hostile takeovers. Normally the stock of an acquisition target appreciates while the acquiring company's stock decreases in value.

Mezzanine Level

Stage of a company's development just prior to its going public. Venture capitalists entering at that point have a lower risk of loss than at previous stages and can look forward to early capital appreciation as a result of the market value gained by an initial public offering.


The behaviour and purchasing decisions of individuals and firms.

Money Market Funds

Mutual funds that invest in short term highly liquid money market instruments. These funds are used when preservation of capital is paramount. They may be used to "park" money between investments, especially during periods of market uncertainty.

Mortgage Backed Security

A pass-through security that aggregates a pool of mortgage-backed debt obligations. Mortgage-backed securities' principal amounts are usually government guaranteed. Homeowners' principal and interest payments pass from the originating bank through a government agency or investment bank, to investors, net of a loan servicing fee payable to the originator.

Multi-Manager Product

An investment pool that allocates assets to a number of managers with different investment styles. This methodology facilitates a high degree of diversification and accordingly the potential for a greater spread of risk. Hedge funds often have this structure. Smaller investors are able to enjoy access to a greater variety of managers that would normally be prohibited by minimum investment requirements for each manager. Funds of funds are a classic multi-manager product.

Municipal Bond (USA)

A debt security issued by a state, municipality, or county, in order to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state the bond is issued. Such expenditures might include the construction of highways, bridges or schools. "Munis" are bought for their favourable tax implications, and are popular with people
in high income tax brackets.

Mutual Fund

A security that gives small investors access to a well diversified portfolio of equities, bonds, and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus. Some examples of mutual funds are UK Unit Trusts, Open-ended Investment Companies (OEICs), EU registered UCITS, Luxembourg based

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National Association of Real Estate Investment Trusts


A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on over-the-counter stocks and some listed stocks. Unlike the Amex and the NYSE, the Nasdaq (once an acronym for the National Association of securities Dealers Automated Quotation system) does not have a physical trading floor that brings together buyers and sellers. Instead, all trading on the Nasdaq exchange is done over a network of computers and telephones. Also, the Nasdaq does not employ market specialists to buy unfilled orders like the NYSE does. The Nasdaq began when brokers started informally trading via telephone; the network was later formalized and linked by computer in the early 1970s. In 1998 the parent company of the Nasdaq purchased the Amex, although the two continue to operate separately. Orders for stock are sent out electronically on the Nasdaq, where market makers list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically.

Net Asset Value (NAV)

NAV equals the closing market value of all assets within a portfolio after subtracting all liabilities including accrued fees and expenses. NAV per share is the NAV divided by the number of shares in issue. This is often used as the price of a fund. A purchase fee may be added to the NAV when buying units in the fund. This fee is typically 1-7%.

Net Exposure

The exposure level of a fund to the market. It is calculated by subtracting the short percentage from the long percentage. For example if a fund is 100% long and 30% short, then the net exposure is 70% long.

Nominee Name

Name in which a security is registered and held in trust on behalf of the beneficial owner.

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Offer Price

The price at which a fund manager or market maker will sell shares to you. (ie offer them to you). The offer price is higher than the Bid Price which is the price at which they will buy shares from you. (ie they will make a bid). This is one way in which a market maker turns a profit. A fund manager may use the difference to cover dealing administration costs.


Located or based outside of one's national boundaries. Typically these locations have preferential tax treatments and fund legislation.

Open Architecture

In relation to funds, for example FPIL Reserve policyholders may choose any security – open architecture. In contrast to FPIL Premier policyholders who may only go into the FPIL mirror fund range – this is guided architecture.

Open-ended Funds

These are funds where units or shares can be bought and sold daily and where the number of units or shares in issue can vary daily.

Opportunistic Investing

A general term describing any fund that is opportunistic in nature. These types of funds are usually aggressive and seek to make money in the most efficient way at any given time. Investment themes are dominated by events that are seen as special situations or short-term opportunities to capitalise from price fluctuations or imbalances, such as initial public offering.


A privilege sold by one party to another that offers the buyer the right, but not the obligation, to buy (call)or sell (put) a security at an agreed-upon price during a certain period of time or on a specific date. Options are extremely versatile securities that can be used in many different ways. Traders use optionsto speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

Over the Counter- OTC

A security traded in some context other than on a formal exchange such as the LSE, NYSE, DJIA, TSX, AMEX, etc. A stock is traded over the counter usually because the company is small and unable to meet listing requirements of the exchanges. Also known as unlisted stock, these securities are traded by brokers/dealers who negotiate directly with one another over computer networks and by phone. The Nasdaq, however, is also considered to be an OTC market, with the tier 1 being represented bycompanies such as Microsoft, Dell and Intel. Instruments such as bonds do not trade on a formal exchange and are thus considered over-the- counter securities. Most debt instruments are traded byinvestment banks making markets for specific issues. If someone wants to buy or sell a bond, they callthe bank that makes the market in that bond and ask for quotes. Many derivative instruments such as forwards, swaps and most exotic derivatives are also traded OTC.

Out of the Money

This refers to options :

1) For a call, when an option's strike price is higher than the market price of the underlying stock.

2) For a put, when the strike price is below the market price of the underlying stock.

Basically, an option that would be worthless if it expired today.


Locking in a price, such as through a futures contract, for more goods, commodities or securities that is required to protect a position. While hedging does protect a position, over-hedging can be costly in the form of missed opportunities. Although you can lock in a selling price, over-hedging might result in a producer or seller missing out on favourable market prices. For example, if you entered into a January futures contract to sell 25,000 shares of 'Smith Holdings' at $6.50 per share you would not be able to take advantage if the spot price jumped to $7.00.

Overlay Strategy

A type of derivatives strategy. This strategy is often employed to provide protection from currencies or interest rate movements that are not the primary focus of the main portfolio strategy.


Refers to an investment position that is larger than the generally accepted benchmark. For example, if a company normally holds a portfolio whose weighting of cash is 10%, and then increases cash holdings to 15%, the portfolio would have an overweight position in cash.

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Pair Trading

The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge createdis essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in. It's the ultimate strategy for stock pickers, because stock picking is all that counts. What the actual market does won't matter (much). If the market or the sector moves in one direction or the other, the gain on the long stock is offset by a loss on the short.

Percent Long

The percentage of a fund invested in long positions.

Percent Short

The percentage of a fund that is sold short.

Performance Fee

The fee payable to the fund adviser on new profits earned by the fund for the period.

Portfolio Turnover

The number of times an average portfolio security is replaced during an accounting period, usually a


The total cost of an option. The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium.

The difference between the higher price paid for a fixed-income security and the security's face amount at issue. If a fixed-income security (bond) is purchased at a premium, existing interest rates are lower than the coupon rate. Investors pay a premium for an investment that will return an amount greater than existing interest rates.

Price Earnings Ratio (P/E Ratio)

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as : Market Value per Share/Earnings per Share (EPS)

EPS is usually from the last four quarters (trailing P/E), but sometimes can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation is the sum of the last two actual quarters and the estimates of the next two quarters.

Sometimes the P/E is referred to as the "multiple," because it shows how much investors are willing to pay per dollar of earnings. In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry, or to the market in general, or against the company's own historical P/E.

Prime Broker

A broker which acts as settlement agent, provides custody for assets, provides financing for leverage, and prepares daily account statements for its clients, who might be money managers, hedge funds, market makers, arbitrageurs, specialists and other professional investors.

Private Placement / Private Equity

When equity capital is made available to companies or investors, but not quoted on a stock market. Thefunds raised through private equity can be used to develop new products and technologies, to expandworking capital, to make acquisitions, or to strengthen a company's balance sheet. The average individual investor will not have access to private equity because it requires a very large investment. The result is the sale of securities to a relatively small number of investors.Private placements do not have to be registered with organizations such as the FSA, SEC because no
public offering is involved.

Proprietary Trading

When a firm trades for direct gain instead of commission dollars. Essentially, the firm has decided to profit from the market rather than commissions from processing trades. Firms who engage in proprietary trading believe they have a competitive advantage that will enable them to earn excess returns.


In the case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements. A prospectus makes investors aware of the risks of an investment and in most jurisdictions is required to be published by law.

Protected Cell Company

A standard limited company that has been separated into legally distinct portions or cells. The revenue streams, assets and liabilities of each cell are kept separate from all other cells. Each cell has its own separate portion of the PCC's overall share capital, allowing shareholders to maintain sole ownership of an entire cell while owning only a small proportion of the PCC as a whole. PCCs can provide a means of
entry into captive insurance market to entities for which it was previously uneconomic. The overheads of a protected cell captive can be shared between the owners of each of the cells, making the captive cheaper to run from the point of view of the insured.


The process whereby Muslims give to charity any interest deemed to have been credited to their holdings in funds or stocks.

Put Option

An option giving the holder the right, but not the obligation, to sell a specific quantity of an asset for a fixed price during a specific period.

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Qualitative Analysis

Analysis that uses subjective judgment in evaluating securities based on non-financial information such as management expertise, cyclicality of industry, strength of research and development, and labour

Quantitative Analysis

A security analysis that uses financial information derived from company annual reports and income statements to evaluate an investment decision. Some examples are financial ratios, the cost of capital, asset valuation, and sales and earnings trends.

Quasi Sovereign Bond

Debt issued by a public sector entity that is, like a sovereign bond, guaranteed by the sovereign, however there is a difference in that there may be a timing difference in repayment in the unlikely event of default.

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REIT Real Estate Investment Trust

A security that trades like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties' rents. Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that
they earn on the mortgage loans. Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

R – Squared

A statistical measure that represents the percentage of a fund's or security's movements that are explained by movements in a benchmark index. It is a measure of correlation with the benchmark.R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. ie perfect correlation.

Repurchase Agreement (Repo)

A form of short term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future) it is a repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. Repos are classified as a money-market instrument. They are usually used toraise short-term capital.

Risk Adjusted Rate of Return

A measure of how much risk a fund or portfolio took on to earn its returns, usually expressed as a number or a rating. This is often represented by the Sharpe Ratio. The more return per unit of risk, the better

Risk Arbitrage

A broad definition for three types of arbitrage that contain an element of risk:

1) Merger and Acquisition Arbitrage - The simultaneous purchase of stock in a company being acquired and the sale (or short sale) of stock in the acquiring company.

2) Liquidation Arbitrage - The exploitation of a difference between a company's current value and its estimated liquidation value.

3) Pairs Trading - The exploitation of a difference between two very similar companies in the same industry that have historically been highly correlated. When the two company's values diverge to a historically high level you can take an offsetting position in each (e.g. go long in one and short the other) because, as history has shown, they will inevitably come to be similarly valued.

In theory true arbitrage is riskless, however, the world in which we operate offers very few of these opportunities. Despite these forms of arbitrage being somewhat risky, they are still relatively low-risk trading strategies which money managers (mainly hedge fund managers) and retail investors alike can employ.

Risk-Free Rate

The quoted rate on an asset that has virtually no risk. The rate quoted for US treasury bills are widely used as the risk free rate.

Risk Reward Ratio

This is closely related to the Sharpe Ratio, except the risk reward ratio does not use a risk free rate in its calculation. The higher the risk reward ratio, the better. Calculated as : Annualised rate of return/Annualised Standard Deviation

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Santa Claus Rally

The rise in US stock prices that sometimes occurs in the week after Christmas, often in anticipation of the January effect.

Satellite Fund

Specialist mandate fund which offers greater breadth of proposition than a "core" fund.

Secondary Market

A market in which an investor purchases an asset from another investor, rather than an issuing corporation. A good example is the London Stock Exchange. All stock exchanges are part of the secondary market, as investors buy securities from other investors instead of an issuing company.

Sector Fund

A mutual fund whose objective is to invest in a particular industry or sector of the economy to capitalizeon returns. Because most of the stocks in this type of fund are all in the same industry, there is a lack ofdiversification. The fund tends to do very well or not well at all, depending on the conditions of the specific sector.


General name for all stocks and shares of all types.

Securities Lending

When a brokerage lends securities owned by its clients to short sellers. This allows brokers to create additional revenue (commissions) on the short sale transaction.


A financial instrument through which a municipality or parastatal (owned or controlled wholly or partly by the government) borrows money from the public in exchange for a fixed repayment plan.


SICAV stands for Societe D'Investissement a Capital Variable. It is a Luxembourg incorporatedcompany that is responsible for the management of a mutual fund and manages a portfolio of securities. The share capital is equal to the net assets of the fund. The units in the portfolio are delivered as shares and the investors are referred to as shareholders. SICAVs are common fund structures in Luxembourg.


Sharia refers to the body of Islamic law. The term means "way" or "path"; it is the legal framework within which public and some private aspects of life are regulated for those living in a legal system based on Muslim principles .

Sharpe Ratio

A ratio developed by Bill Sharpe to measure risk-adjusted performance. It is calculated by subtracting the risk free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns.

Calculated as : Expected Portfolio Return – Risk Free Rate/Portfolio Standard Deviation

The Sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions or a result of excess risk. The Sortino Ratio is a variation of this.

Short Selling

The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short. Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price. This is an advanced trading strategy with many unique risks and pitfalls.

Small Caps

Stocks or funds with smaller capitalisation. They tend to be less liquid than blue chips, but they tend to have higher returns.

Soft Commissions

A means of paying brokerage firms for their services through commission revenue, as opposed to normal payments. For example, a mutual fund may offer to pay for the research of a brokerage firm by executing trades at the brokerage.

Sovereign Debt

A debt instrument guaranteed by a government.

Special Situations Investing

Strategy that seeks to profit from pricing discrepancies resulting from corporate event transactions such as mergers and acquisitions, spin-offs, bankruptcies or recapitalisations. Type of event-driven strategy.

Specific Risk

Risk that affects a very small number of assets. This is sometimes referred to as "unsystematic risk." An example would be news that is specific to either one stock or a small number of stocks, such as a sudden strike by the employees of a company you have shares in or a new governmental regulation affecting a particular group of companies. Unlike systematic risk or market risk, specific risk can be diversified away.

Spin Off

A new, independent company created through selling or distributing new shares for an existing part of another company. Spinoffs may be done through a rights offering.


Lead investors in a fund who supply the seed money. Often the general partner in a hedge fund.


1) The difference between the bid and the offer prices of a security or asset.

2) An options position established by purchasing one option and selling another option of the same
class, but of a different series

Standard Deviation

Tells us how much the return on the fund is deviating from the expected normal returns.

Stop-Loss Order

An order placed with a broker to sell a security when it reaches a certain price. It is designed to limit an investor's loss on a security position. This is sometimes called a "stop market order." In other words, setting a stop-loss order for 10% below the price you paid for the stock would limit your loss to 10%.

Strategic Bond Funds

Invest primarily in higher yielding assets including high yield bonds, investment grade bonds, preference shares and other bonds. The funds take strategic asset allocation decisions between countries, asset classes, sectors and credit ratings.

Strike Price

The stated price per share for which underlying stock may be purchased (for a call) or sold (for a put) by the option holder upon exercise of the option contract.


Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rates swaps. If firms in separate countries have comparative advantages on interest rates, then a swap could benefit both firms. For example, one firm may have a lower fixed interest rate, while another has access to a lower floating interest rate. These firms could
swap to take advantage of the lower rates.

Swaption (Swap Option)

The option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.

Swing Trading (Swings)

A style of trading that attempts to capture gains in a stock within one to four days. To find situations in which a stock has this extraordinary potential to move in such a short time frame, the trader must act quickly. This is mainly used by at-home and day traders. Large institutions trade in sizes too big to move in and out of stocks quickly. The individual trader is able to exploit the short-term stock movements without the competition of major traders. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren't interested in the fundamental or intrinsic value of stocks but rather in their price trends and patterns.

Systematic Risk

The risk inherent to the entire market or entire market segment. Also known as "un-diversifiable risk" or "market risk." interest rates, recession and wars all represent sources of systematic risk because they will affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged.

Systemic Risk

Risk that threatens an entire financial system.


Standard & Poor's Index of the New York Stock Exchange. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole.

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Treasury Bill

A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less. Exempt from state and local taxes. Also called Bill or T-Bill or U.S. Treasury Bill.

Time Value

The amount by which an option's premium exceeds its intrinsic value. Also called time premium.

Top-Down Investing

An investment strategy which first finds the best sectors or industries to invest in, and then searches for the best companies within those sectors or industries. This investing strategy begins with a look at the overall economic picture and then narrows it down to sectors, industries and companies that are expected to perform well. Analysis of the fundamentals of a given security is the final step.

Tracking Error

This statistic measures the standard deviation of a fund's excess returns over the returns of an index or benchmark portfolio. As such, it can be an indication of 'riskiness' in the manager's investment style. A Tracking Error below 2 suggests a passive approach, with a close fit between the fund and its benchmark. At 3 and above the correlation is progressively looser: the manager will be deploying a more active investment style, and taking bigger positions away from the benchmark's composition.

Traded Endowment Policy - TEP

An Endowment Policy is a type of life insurance that has a value that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. They are normally "with profits policies". If the insured does not wish to wait until maturity to receive the value they can either surrender it back to the issuing insurance company, or they can sell the policy on the open market. If the policy is sold it then becomes a Traded Endowment Policy or TEP. TEP Funds aim to buy and sell TEPs at advantageous prices to make a profit.

Traded Options

Transferable options with the right to buy or sell a standardised amount of a security at a fixed price within a specified period.

Traditional Investments

Includes equities, bonds, high yield bonds, emerging markets debt, cash, cash equivalents.

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Umbrella Fund

An investment company which has a group of sub-funds (pools) each having its own investment portfolio. The purpose of this structure is to provide investment flexibility and widen investor choice.

Underlier or Underlying Security

A security or commodity which is subject to delivery upon exercise of an option contract or convertible security. Exceptions include index options and futures, which cannot be delivered and are therefore settled in cash.


A situation where a portfolio does not hold a sufficient amount of securities to satisfy the accepted benchmark of the portfolio's asset allocation strategy. For example, if a portfolio normally holds 40% stock and currently holds 30%, the position in equities would be considered underweight.

Unit Trust

A common form of collective investment (similar to a mutual fund) where investors money is pooled and invested into a variety of shares and bonds in order to reduce risk. Its capital structure is open ended as units can be created or redeemed, depending on demand from investors. It should be noted that a Unit Trust means something completely different in the US.

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Value of New Business VNB

Sum of all income (ie charges) from new policies minus costs of setting up the policies (ie commission) discounted to present day value.

Value Stocks

Stocks which are perceived to be selling at a discount to their intrinsic or potential worth, ie undervalued; or stocks which are out of favour with the market and are under-followed by analysts. It is believed that the share price of these stocks will increase as the value of the company is recognised by the market.

Value-Added Monthly Index (VAMI)

An index that tracks the monthly performance of a hypothetical $1000 investment. The calculation for the current month's VAMI is: Previous VAMI x (1 + Current Rate of Return)

The value-added monthly index charts the total return gained by an investor from reinvestment of any dividends and additional interest gained through compounding. The VAMI index is sometimes used to evaluate the performance of a fund manager.

Venture Capital

Money and resources made available to start-up firms and small businesses with exceptional growth potential. Venture capital often also includes managerial and technical expertise. Most venture capital money comes from an organized group of wealthy investors who seek substantially above average returns and who are willing to accept correspondingly high risks. This form of raising capital is increasingly popular among new companies that, because of a limited operating history, can't raise money through a debt issue. The downside for entrepreneurs is that venture capitalists usually receive a say in the major decisions of the company in addition to a portion of the equity.


Standard deviation is a statistical measurement which, when applied to an investment fund, expresses its volatility, or risk. It shows how widely a range of returns varied from the fund's average return over a particular period. Low volatility reduces the risk of buying into an investment in the upper range of its deviation cycle, then seeing its value head towards the lower extreme. For example, if a fund had an average return of 5%, and its volatility was 15, this would mean that the range of its returns over the period had swung between +20% and -10%. Another fund with the same average return and 5% volatility would return between 10% and nothing, but there would at least be no loss.


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