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.


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 with they combine a relatively large bond component (or bond floor), and meaningful sensitivity to equities.  Balanced convertibles maximise the asymmetry inherent in convertibles.

 

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.

 

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

 

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.

 

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

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.

 

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 factors in corporate behaviour that may offer investors potential long-term performance advantages.

 

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.

 

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

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.

 

 

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

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.

 

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.

 

 

P - T

 

P

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. 

 

 

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

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.

 

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

 

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.

 

Y

Yield

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