glossary.

    glossary.

    A description of financial terms found on our website.

    If you are unable to find the term you are looking for, please contact us.

     

    A - E

    A

    ABS (Asset-Backed Security)

    A financial security collateralized by a pool of assets such as loans, leases, credit card debt, etc.

     

    Alpha

    Typically refers to the excess return of a strategy relative to returns available in the broader market.

     

    Alternative Investment

    Broadly defined, an investment that is not one of the three traditional asset types (stocks, bonds and cash).  Alternative investment strategies typically have the ability to use leverage, shorting, and active risk management in pursuit of returns that have a low correlation with traditional asset types.
     

    Article 8

    Article 8 is attributed to those financial products and/or funds that promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics, provided that the companies in which the investments are made follow good governance practices.
     

    Article 9

    Article 9 is attributed to those financial products and/or funds that specifically have sustainable goals as their objective. For example investing in companies whose goal it is to reduce carbon emissions.
     

    Asset allocation

    An investment strategy that seeks to balance risk and reward by dividing investments among different kinds of asset classes, such as stocks, bonds and cash.
     

    Asymmetric return profile

    A set of possible results from an investment strategy where the potential upside outweighs the downside risk.  More generally, asymmetry can be used to describe the resilience of an instrument to different outcomes.

    In convertibles, the asymmetric return profile is also referred to as convexity.  

     

     

    B

    Baby boomers

    Generation born between 1946-1964.

     

    Balanced (convertible bonds)

    Convertible bonds are described as balanced as they combine a relatively large bond component (or bond floor), and meaningful sensitivity to equities.  Balanced convertibles maximise the asymmetry inherent in convertibles.

     

    B Corp

    Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps contribute to a  global culture shift to redefine success in business and build a more inclusive and sustainable economy

     

    Best-in-class

    Refers to companies that are leaders in their sector in terms of meeting environmental, social and governance criteria. 

     

    Bottom-up analysis

    An approach focusing on the analysis of the individual stocks. In bottom-up investing, therefore, the investor focuses his or her attention on a specific company rather than on the industry in which that company operates, or on the economy as a whole.

     

    Bull/Bear

    A market when security prices are generally rising (bull) or falling (bear).

     

    Buy and maintain

    An investment strategy that typically focuses on low turnover or holding investments for a longer period of time, and a diversified approach to risk.

     

     

    C

    Cap (capitalisation)

    Total equity market value of company (number of outstanding shares multiplied by price per share).

     

    Capital efficiency

    A company’s level of profit generated over capital employed.

     

    Capital structure

    Proportion of net debt to equity.

     

    Carbon footprint

    The amount of carbon dioxide released into the atmosphere as a result of the activities of a particular individual, organisation, or community.
     

    Cash equivalent per share 

    Sum of highly-liquid investments which can be easily converted into cash (for example treasury bills), divided by the number of shares

     

    Circular economy

    An economy based on reduced demand for goods, on the extension of product life, and on the reduction of waste. This model would only return outputs such as water and compost to the environment as they can be readily re-absorbed. Circularity refers to the re-design of products and business models to promote the reduction, repair, re-use, re-distribution, and recycling of products. 

     

    CLIC economy

    An economic model geared towards sustainability, social justice and responsible stewardship of the environmental. It is a CLIC economy: an economy that is Circular, Lean, Inclusive and Clean. It is the opposite of the current economic model, characterised by value destruction. It is wildly unsustainable in the way people consume, produce and organise their lives. We call this Wasteful, Idle Lopsided, and Dirty economy, the WILD economy. 

     

    Climate-aligned bonds (non-labelled)

    Non ring-fenced debt funding dedicated to climate-friendly sectors, requiring deeper impact verification expertise.

     

    Commodities

    Investing in commodities provides investors with access to “real assets” such as oil, agricultural goods, and precious metals.

     

    Consumer discretionary

    Goods and services that are considered non-essential by consumers, but desirable if their available income is sufficient to purchase them.

     

    Consumer staples

    Goods and services most people need to live regardless of the state of the economy.

     

    Conversion price

    The price at which convertible bonds can be converted into shares in a company.

     

    Convexity (see also asymmetric return profile)

    Convexity (sometimes referred to as asymmetry) describes the resilience of an instrument to different outcomes. The convexity of a convertible bond describes the potential to capture the most of the upside in equity markets, while providing a measure of protection from the downside due to the bond characteristics.

     

    Correlation

    A statistic that measures the degree to which two securities move in relation to each other.

     

    Cost of carry

    The cost associated with holding a particular investment position. Cost of carry can include financial costs such as interest rate costs, storage costs for a physical asset, and opportunity costs.

    Negative carry occurs when the cost of holding an investment exceeds the income earned while holding it. Positive carry occurs when the cost of holding and investment is less than the income earned.

     

    Credit rating

    An independent assessment of a borrower’s ability to repay its debts i.e. default risk. Standard & Poor’s, Fitch and Moody’s are the three most prominent credit rating agencies.

     

     

    D

    Data science

    the use of analysis techniques to find patterns, or trends.
     

    Debt recourse

    Rights to demand payment from the general or specific assets of the debtor.

     

    Debt to equity

    A company’s total debt divided by shareholders’ equity.

     

    Delta (convertible bond)

    A measure of the sensitivity of the convertible bond price to share price movements.

     

    De-risk

    When investors de-risk their portfolios, they look to reduce their exposure to risk, especially if markets are volatile.  This can involve re-balancing exposure between stocks and bonds, investing in multi-asset strategies, or other options.

     

    Derivatives

    A contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index).

     

    Diversification

    If the price of one asset class typically moves in the reverse direction to another, this can help mitigate risk on a portfolio. For example, if bond prices rise when equity prices fall, including bonds in a portfolio of equities can help to reduce the volatility in the value (i.e., risk) of that portfolio.

     

    Drawdown

    A measure of historical risk that refers to the proportional decline of an instrument from its highest point to its lowest point during a specific period.  Drawdowns are typically expressed as a percentage of movement between the peak valuation of the instrument (eg its highest point) and the trough valuation (eg its lowest point).

     

    Duration 

    Measures the sensitivity of the price of a bond to changes in interest rates.  Duration risk typically quantifies the potential impact of changes in interest rates on a bond price, and tends to be more pronounced in longer-dated debt than in shorter-dated debt.

     

     

    E

    Emerging markets

    An emerging market economy is one in which the country is becoming a developed nation and is determined through many socio-economic factors.

     

    Equities/stocks/shares

    An investment type focused on stocks or other securities representing an ownership interest in a company.

     

    Equity option

    An option that gives the investor the right, but not the obligation, to buy or sell a quantity of stock at a set price.  An equity call option gives the right to buy the shares, whereas an equity put option gives the right to sell the shares.  Convertible bonds embed an equity call option into a bond.

     

    ESG

    Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations used to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

     

    Excess economic returns

    Companies making profits that comfortably exceed their cost of capital.

     

    Exposure

    Exposure refers to the possible risk to an investment at a given point. In fixed income, bonds have exposure to interest rate risk, duration and credit.

     

     

    F - J

     

    F

    Fallen angels

    Debt issuers that have been downgraded to below investment grade credit ratings.

     

    FRN (Floating Rate Notes)

    A debt instrument with a variable interest rate.

     

    Fundamental analysis

    Financial analysis about a company such as assessing its sales, profitability and ability to service debt.

     

    Fundamental Credit Analysis

    Analysis of the balance-sheet and cash flow statements to evaluate liquidity position and solvency 

     

    FX arbitrage

    A strategy acting on opportunities presented by pricing inefficiencies in the short window they exist. 

     

    Fundamentals

    The key information about a company that determines if it is considered a worthwhile investment.  Fundamentals represent the basic qualities and reported information needed to analyse the strength of the business.

     

     

    G

    GICS Level 1 and Level  2

    Global Industry Classification Standard provide an efficient and flexible tool to use in the investment process. It responds to the financial community’s need for a global, accurate, complete and widely accepted approach to defining industries and classifying securities by industry. Level 1 refers to sectors, of which there are 11 (energy, materials, industrials, consumer discretionary, consumer staples, health care, financials, information technology, communication services, utilities and real estate). Level 2 refers to Industries, of which there are 24. 
     

    GDP (Gross Domestic Product)

    The monetary value of all the finished goods and services produced within a country’s borders in a specific time period. A PPP-based GDP measure involves converting individual countries’ GDP using the Purchasing Power Parity approach as an exchange rate. PPP is the exchange rate that allows an identical basket of goods in one country to be bought in a second country.


    Green bonds (labelled)

    Ring-fenced debt funding for projects with clear positive climate impact. External validation on the use of proceeds.

     

    GRI

    Global Reporting Initiative. GRI standards support organisations to be transparent and take responsibility for their impacts through the world’s most widely used standards for sustainability reporting, the GRI standards.

     

     

    H

    Hedge Funds

    A portfolio that employs numerous different strategies to earn active return, or alpha, for their investors. 

     

    High conviction approach

    Seeking a more concentrated portfolio of investments that a manager has high confidence will do well in the future.

     

    High yield

    A high yield bond has a rating that is below investment grade, and generally pays a greater return to the investor to reflect the higher risk of the borrower defaulting.  The rating is generally below BBB for Standard & Poor's, or below Baa for Moody's.

     

     

    I

    Idiosyncratic risk

    A risk that is specific to a particular asset rather than to the portfolio as a whole.

     

    Impact verification

    An objective assessment to qualify a project’s green, social or sustainability impact with measurement of those results.

     

    Investment grade

    A bond with a credit rating of at least BBB- (Fitch), Baa3 (Moody’s) or BBB- (S&P).

     

     

    K - O

     

    L

    Leverage

    Generally speaking, leverage is a measure of indebtedness on a proportional basis. Leverage measures borrowing relative to income, company earnings or a country’s GDP. Private leverage measures debt relative to individual income. Company leverage typically measures the ratio of a corporate’s debt relative to earnings (such as EBITDA). Government leverage is usually measured by the ratio of government borrowing relative to GDP. Sometimes referred to as gearing.

     

    Libor

    A benchmark rate that represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. 

     

    Limit order

    The use of a pre-specified price to buy or sell a security.

     

    Liquid securities

    Securities (e.g., bonds, equities) that are easy to buy (or sell) in the relevant investment market without the purchase (or sale) significantly impacting the price of the security.

     

    Liquidity buffer

    An amount of cash or similarly liquid assets that can be easily accessed.

     

    Liquidity Risk

    An asset’s ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.

     

    Long/Short equity

    An investing strategy that takes long positions in stocks that are expected to appreciate and short positions in stocks that are expected to decline.

     

     

    M

    Machine learning

    The use of algorithms that improve automatically through exposure to data.

     

    Margin call

    This is a demand for a client to deposit money or securities into a margin account. This can occur when a purchase is made in excess of the value of the margin account or when the value of an account decreases because the value of the securities held decreases regardless of whether a new purchase is made or not.

     

    Market neutral

    A type of investment strategy undertaken by the investment manager that seeks to profit from both increasing and decreasing prices in one or more markets, while attempting to completely avoid some specific form of market risk.

     

    Maturity

    1. For a bond, the time at which the principal of the bond is repayable and it ceases to exist.
    2. For a pension fund, broadly the average age of the membership and the time until benefits are payable.

     

    Mispricing

    Stocks valued by the markets at below (or above) what a manager deems to be the fair value of a company, based on its financial data and prospects.

     

    Momentum

    The rate of change on price movements for an asset. Momentum is used as a trading technique to buy or sell based on trends in an asset’s price.

     

    Money market

    Money market funds trade in short-term debt and monetary instruments. They are viewed as lower risk (but not risk free) investments that historically have provided a better return to investors than cash.
    Mutual fund 

     

    Multi-asset

    Describes an investment that invests across a range of asset classes (for example, equities, bonds, commodities).

     

     

    O

    Open-ended

    An open-end fund, or open-ended fund, is a collective investment scheme, more commonly known in the UK as either an OEIC(open-ended investment company) or unit trust. Investors can buy shares in an open-ended fund direct from the fund provider or via an investment platform or broker. The fund will invest in a group of securities, including but not limited to stocks, bonds and property.

     

    Option (convertibles)

    A convertible bond has the option to be converted into shares of the company at a ratio determined at issue.

     

    Organic revenue growth

    An increase in a company’s revenue base that is not achieved through mergers and acquisitions.

     

    Over the counter

    Over-the-counter (OTC) refers to the process of how securities are traded for companies that are not listed on a formal exchange such as the New York Stock Exchange (NYSE). Securities that are traded over-the-counter are traded via a dealer network as opposed to on a centralized exchange.

     

    Oxford Martin Principles Framework

    The Principles provide a framework for engagement between climate-conscious investors and companies across the global economy. The framework focuses on a commitment to net-zero emissions; a profitable net-zero business plan and quantitative medium-term targets. 

     

     

    P - T

     

    P

    Paris Agreement

    The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December 2015 and entered into force on 4 November 2016. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century

     

    PPP (Purchasing Power Parity)

    Purchasing power parity is an economic theory that compares different countries’ currencies through a “basket of goods” approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries.

     

    Private Equity

    Equity shares that are not traded on a public exchange.

     

    Portfolio turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. 

     

    Public equity investing

    Investing in publicly listed markets (as opposed to private equity)

     

     

    Q

    Quantamental investment solutions

    Quantamental investment solutions combine quantitative and fundamental modelling techniques. These are particular well adapted to quantifying the impacts of transitioning from a WILD to a CLIC economy and to build portfolios that are aligned with this transition.

     

    Quantitative modelling

    Quantitative modelling concerns the representation of entities and systems in the form of equations to investigate the interactions between them

     

     

    R

    Risk-adjusted return

    Defines the return to the investor from an investment, taking into account how much risk was incurred in producing that return over time.  If two investments have equivalent returns over a given timeframe, the one with the lowest risk will have a better risk-adjusted return.  A common measure of risk-adjusted return is the Sharpe ratio.  

     

    Risk-based investment approach (or risk allocation) 

    This means that instead of designing the Sub-Fund around a chosen split of capital (e.g., 60% of the fund’s capital to be invested in equities; 40% in bonds) the chosen split relates to how the portfolio’s overall risk is allocated rather than its capital. For example, if the manager targets 60% of portfolio risk in equities, at times when equity markets become highly volatile, the manager will need to reduce the amount of capital invested in equities so that he/she keeps the level of risk in equities at 60%. 

     

    Risk-return

    A risk-return profile looks at the potential risks of a strategy relative to the returns that an investor might expect.  Weighing the risks and returns helps an investor make choices that are aligned with the overall profile of their portfolio.

     

     

    S

    Self-regulation

    Whereby an organisation measures and ensures it is operating with current ethical, legal, environmental and international standards and norms.
     

    SFDR

    The Sustainable Finance Disclosure Regulation  (SFDR) imposes mandatory ESG disclosure obligations for asset managers and other financial markets participants.
     

    Sharpe ratio

    (see risk-adjusted return)

     

    Short side

    This profits if a security's price declines. In other words, the trader sells to open the position and expects to buy it back later at a lower price and will keep the difference as a gain.

     

    SRI

    Social Responsible Investment, is an investment that seeks to consider financial returns and social goods, for example, avoiding investments in companies that produce or sell addictive substances and seeking to invest in companies engaged in social justical, environmental sustainability and clean energy. 

     

    Structural

    A condition that changes how an industry or market operates, regardless of cyclical or short-term economic trends.

     

     

    T

    Transition rate

    Likelihood that a given rating will change over a given period.

     

    Turnover

    The frequency of trading involved in a strategy.  A low turnover strategy would refer to reduced incidence of trade, while a high turnover strategy would refer to an approach that trades more frequently.

     

     

    U - Z

     

    U

    UN PRB

    Aa single framework for a sustainable banking industry. The Principles for Responsible Banking set out the banking industry’s role and responsibility in shaping a sustainable future and in aligning the banking sector with the objectives of the UN Sustainable Development Goals and the 2015 Paris Climate Agreement. They also, importantly, embed sustainability across all business areas, and help banks to identify where they have the potential to make the most impact in their contributions to a sustainable world.

     

    United Nations Global Compact

    Its aim is to mobilize a global movement of sustainable companies and stakeholders through doing business responsibly (strategies and operations) and taking strategic action to advance broader societal goals. 
     

    V

    Valuation

    The process of determining the present value of an asset or a company.

     

    Valuation shock

    A sudden change in the price of a bond, sometimes due to a downgrade in an issuer's credit rating.

     

    Volatility

    The annualised standard deviation of returns reflecting dispersion of a share price. The assumption for future share price volatility is an input for convertible valuation.

    Volatility measures the risk of a security.  The term is used when pricing options to gage the fluctuations in the returns of underlying assets. If the price of a security moves rapidly in a short period of time, it has high volatility.  If it moves slowly, then it has low volatility.

     

     

    W

    WILD economy

    Our current economic model, characterised by value destruction. It is wildly unsustainable in the way people consume, produce and organise their lives. We call this Wasteful, Idle Lopsided, and Dirty economy, the WILD economy. We believe that an economic model geared towards sustainability, social justice and responsible stewardship of the environment is represented in the CLIC economy: an economy that is Circular, Lean, Inclusive and Clean. 
     

     

    Y

    Yield

    The anticipated percentage return on a bond if held to its maturity date.