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Glossary

We are very much aware of the amount of technical phrases and “jargon” that is used in our industry. We try and use plain and simple English as much as possible, but there are still some words and phrases that are often used. As such we have produced the following glossary to help explain some of the more common terms that you may read or hear.

A

Accumulation Units

Units in a fund where the income from the trust’s investments is reinvested rather than being paid out to investors as dividends. This is effected either through enhancing the unit price or issuing additional units. Unit holders get the benefit of the dividends through the increased value of the fund assets (and their share of those assets).

Active Fund

A fund in which the objective is to outperform the market average by actively picking stocks that the manager thinks will provide superior returns.

Asset Allocation

The process of deciding how to apportion investment capital between the various possible asset classes: bonds, stocks, property, cash etc.

B

Benchmark

A standard or point of reference by which an investment can be measured. Investment funds are usually measured against a broad market or specific market index.

Bonds

The generic name for a tradable loan security issued by governments and companies as means of raising capital. In the UK government bonds are known as “gilts” or “gilt edged securities” due to the fact that many years ago the certificates concerning ownership were gilded. Bonds issues by companies are known as “corporate bonds”.

C

Commodity

Basic raw materials and foodstuffs such as metals, oil, gas, plantation crops, grain and oil seeds. Commodities are traded on a commodity exchange both by the companies that use them (e.g. chocolate manufacturers or oil companies) and by investors looking to profit from changes in values.

Corporate Bonds

See Bonds

D

Dividend

The distribution of part of a company’s earnings to shareholders, usually twice a year. In the UK there is traditionally a main dividend and an interim dividend during a company’s accounting year.

E

Equities

Also known as “stocks” and “shares”, these are instruments signify an ownership position, or equity, in a business and represent a claim on its proportionate share in the business’s assets and profits. Holders of equity are often called “shareholders” or “stockholders”.

F

FTSE 100 Index

An index of the share prices of the 100 largest companies (by market capitalisation / value and updated quarterly) in the UK. This index in updated throughout the trading day in real time. A company that is listed on a market such as the London Stock Exchange, is said to be “quoted”.

FTSE 250 Index

An index of the share prices of the 250 largest companies immediately following the largest 100. The FTSE 350 is a combined index of the FTSE 100 and the FTSE 350.

FTSE All Share Index

Generally viewed as the most representative index of the performance of the UK market, this index comprises the share price of nearly 700 leading companies and Investment Trusts on the London Stock Exchange.

G

Gilt-Edged Stock

See Bonds

I

Income Units

Units in a fund where the income from the trust’s investments is paid out to investors, rather than being reinvested.

Intestacy

This is the situation that exists when a person dies without a valid will. The person is then said to have died intestate.

Investment Bond

A unit linked single premium life assurance policy. Part of the premium gives life cover, whilst the balance in invested in unitised funds. Under some circumstances, since the bond is treated as a life policy, certain tax advantages may be enjoyed.

Investment Trust

A company quoted on the London Stock Exchange that invests its shareholders funds in the shares of other companies. They enable private investors with limited funds to get diversified share ownership without incurring heavy dealing costs and enable investors to get exposure to markets they may not be able to reach themselves (e.g. emerging market countries). They are “closed-ended” which means they have a fixed number of shares in circulation and the price of those shares is determined like any other quoted share – by supply and demand.

L

Large Cap

One of a trio of terms in common use, the others being “mid cap” and “small cap” referring to the market capitalisation of companies. While the thresholds are variable, the phrase large cap refers to the very largest companies with the highest market values, so companies in the FTSE 100 would all be classed as large caps.

M

Mutual Fund

See Open Ended Investment Company and Unit Trust

O

Open Ended Investment Company (OEIC)

Hybrid investment funds that have some of the features of an investment trust and some of the features of a unit trust. They use money raised from shareholders to invest in other companies shares. They are “open-ended” which means that when demand for the shares rises the manager just issues more shares. The price of OEIC shares is determined by the value of the underlying assets of the fund, as opposed to supply and demand.

Option

An option is a contract that gives its holder the right but not the obligation to buy or sell a fixed number of shares (or other instrument or commodity) at a fixed price on, or before a given date.

P

Passive Fund

See Tracker Fund

Pound Cost Averaging

The investing of amounts over regular periods, typically monthly, in order to accumulate holdings in securities such as shares, OEICs, investment trusts and unit trusts. When, for example, a unit trust price has fallen then more units can be purchased for that month, similarly when the price rises then fewer units can be purchased. Over a period of a few years, the average price paid will be lower than the average share price for that period since more shares are bought at the lower price and fewer at the higher price.

S

Security

A financial asset such as a share or bond of a company, government body or other organisation that is evidence of debt or equity, and that has been purchased as investment by investors. See Bonds, Equities, Investment Trust; Open Ended Investment Company, and Unit Trust.

Stocks and Shares

See Equities

T

Tracker Fund

A fund that aims to achieve the same return as a chosen share index by investing in all the companies in the index according to market weighting.

U

Unit Trust

These are collective funds that allow private investors to pool their money in a single fund, thus spreading their risk across a range of investments. These are open-ended in the same style as OEICs are.

Y

Yield

Yield calculations on bonds and equities aim to show the income or return, as a percentage of its current price. For example is an equity had a price of 100 and was paying a dividend of 4 the yield would be 4%.

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