Copy of `Scandia - Glossary of economics`
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Scandia - Glossary of economics
Category: Economy and Finance
Date & country: 20/09/2007, UK
When a company issuing a Share has received all the money for it from the shareholder.
A pool of money normally set apart for a purpose, for example, a pension fund to provide benefits under a pension policy.
The professional company responsible for the day to day running of a fund.
Fund Manager Start Date
The date on which the particular fund manager took on responsibility for running the fund.
Fund Manager Tenure
The length of time the particular fund manager has been running the fund.
Fund Risk Number
The Skandia Fund Risk Number has been calculated by taking the volatility values of all the funds in the relevant fund range and arranging them in ascending order. The ordered volatility range has subsequently been divided into ten segments, each representing 10% of the range. The funds have been placed into the relevant segment, depending on where their volatility numbers fall. Each segment has been colour coded to represent the risk associated with each fund (based on five-year volatility). Where a fund does not have a full 5 years of performance history, the Risk Number for the sector the fund is classified in will be used as a proxy.
The value of all the assets held in a fund. Usually based on the bid or selling price of the underlying assets.
Providing access to a number of investment companies through one route e.g. one website address.
The monetary value of a fund, calculated by adding up the value of its underlying assets. The price of units in a Unit Trust, for instance, is worked out from the value of all its holdings divided by the number of units issued.
A fund yield expresses the amount of income that a fund has paid out in proportion to its price, and is usually stated in annualized terms. It may express either actual or expected distributions. A fund's yield is commonly associated with a fund's interest rate or dividend payment.
Analysis of share values based on factors such as sales, earnings and assets that are â€œfundamentalâ€? to the enterprise of the company in question. These factors are considered in light of current share prices to ascertain any mispricing of the shares.
An obligation to make or take delivery of a specified quantity and quality of an underlying asset at a particular time in the future and at a price agreed when the contract was executed.
A market in which futures contracts are transacted.
A measure of indebtedness, i.e. the extent of borrowing as against the equity held by a person or company in an asset. The ability to increase exposure by investing in futures contracts without making the underlying cash available. See also Leverage.
Is a transfer of goods or property to another party. There are limits to the amount of gifts you can make without any tax liability.
A loan to the government usually with a fixed rate of interest and usually over a specified period of time. The original amount is usually repaid at the end of the loan period
Low risk investment with high security.
A colloquial term for the US dollar.
A term that describes when a hostile bidder threatens a company with takeover by purchasing a large number of its shares, forcing the management of the company to repurchase the shares at an above market price.
The total before deductions have been taken away.
Gross Domestic Product (GDP)
A measurement of the aggregate goods produced and services provided within an economy over a year and excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of an economy. See also Gross National Product.
The amount of interest you receive without any Income Tax taken out
Gross National Product
An economic statistic which includes GDP plus any income earned by residents from their overseas investments, minus income earned within the domestic economy by overseas residents. See also Gross Domestic Product.
Group of Seven (G7)
The seven major capitalist powers: Canada, France, Germany, Italy, Japan, UK and US.
One who seeks capital gain from expected further growth in company earnings. Typically, growth investors care less about price/earnings ratios and other valuation measures and more about earnings growth.
Stocks whose earnings have grown at an above-average rate over a number of years and which are expected to continue to grow at a high rate for some time to come.
Guaranteed Minimum Pension
A Guaranteed Pension amount paid, as a condition of contracting out of SERPS under a Final Salary Scheme up to and including 5 April 1997 from which point different rules apply.
Hang Seng Index
The principal Hong Kong Share Price Index.
The published overall inflation rate, unadjusted for non-economic factors, as opposed to underlying inflation.
A type of investment portfolio under which the fund manager is authorised to utilise a number of higher risk investment techniques, including using derivatives, short selling and borrowing funds to generate a higher return.
The practice of undertaking one investment activity in order to protect against loss in another e.g. selling short to nullify a previous purchase. While hedges reduce potential losses, they also tend to reduce potential profits.
High Yield Corporate Bonds
Generally, a high yield bond will be ranked very low by a rating agency, because these are bonds which have a relatively high chance of default, and therefore have to offer higher returns.
Higher Rate Tax
The highest rate of Income Tax in the UK, which in the 2004-2005 tax year is 40%.
Company which controls another company usually by owning 50% or more of its Shares.
Investment Company with Variable Capital â€` this is the generic term for an OEIC or similar investment vehicle where investors pool their contributions with those of other people, to create a portfolio of assets.
An example of the potential growth rates a customer can expect to receive from an investment. The growth rates used are set by the FSA, the industry`s regulator. It is important to remember that the actual return received could be higher or lower than those shown on the illustration.
Grouping of funds for performance measurement by the Investment Management Association.
The design of a portfolio to achieve a target level of return in the face of changing reinvestment rates and price levels. This is done by combining short and long-term bonds in the same portfolio to produce a predictable rate of return regardless of movements in interest rates.
Referring to an activity which is conducted within an organisation rather than contracted out to an external party.
Money received by an individual as a salary, or from investments. Cash deposits and Bonds will provide income in the form of interest. UK Shares will, in most but not all cases, provide income in the form of twice-yearly dividends. The most notable exceptions are the high growth, â€˜new economy` stocks that came to prominence in the late 1990s which generally do not pay dividends. This income is subject to Income Tax.
Enables people with certain types of pension plans to take income direct from their pension fund before age 75 (at age 75 the money must be used to purchase a pension Annuity).
A portfolio consisting of securities whose principal attractiveness lies in the steady income they provide.
Tax paid by individuals on income received over a certain threshold. The amount paid will depend on the amount earned and unearned during a tax year period.
Unit held within a Unit Trust that pays out to investors as an income, instead of being reinvested.
An insurance designed to compensate a policy holder for any loss suffered.
In the stock market, an index is a device that measures changes in the prices of a basket of Shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of Shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.
A portfolio of securities structured in such a way that its value will closely follow a nominated market index, e.g. an equity index fund may be designed to track the FT/S&P All Share Index. There are three main methods in use; Replication, Stratified Sampling and Optimised Sampling.
A way of managing a fund. An index-linked fund simply follows as closely as possible the movement within a chosen market. It does not aim to outperform the market like active management does.
Index Linked Gilts
A UK government bond (gilt) whose redemption value and interest payments are linked to inflation (as measured by the Retail Prices Index).
1. Making an adjustment to allow for the effects inflation can have on money, used to reduce the amount payable in Capital Gains Tax. 2. Another name for Index Tracking. An investment strategy designed to produce a rate of return in line with a specific financial index
An increase in the level of prices of goods and services in the economy. It is typically measured by examining a basket of goods and services.
Inheritance Tax (IHT)
IHT is a tax that your estate pays at a flat rate of 40% on assets over a certain limit (the IHT threshold) that you leave on your death. The Inheritance tax threshold for the 2005/2006 tax year is £272,000. Any amount of money you give away outright will not be counted for the IHT if you survive for seven years after making the gift. If you die within seven years, taper relief on the amount will apply. This reduces the amount of tax due. Some gifts are exempt for IHT altogether regardless of how soon you die after making them. They include gifts to your spouse and gifts to charities.
A charge made by an investment provider when you first take out an investment. This is to cover the cost of setting up the investment
Initial Public Offering (IPO)
The first sale of shares of a company to the public.
The illegal practice of trading in securities on the basis of â€œinsideâ€? or secret information which is not available to the public at large.
Insurance Premium Tax
A tax levied on most non-life insurance policies.
A person covered by an insurance policy.
A company that offers an insurance policy.
A tax-free transfer between husband and wife under Inheritance Tax rules.
The return earned on funds which have been loaned or invested (i.e. the amount a borrower pays to a lender for the use of his/her money).
A measure of a company`s ability to meet its interest obligations, calculated by dividing interest payments into income. The higher the ratio the better.
The amount of money a customer can earn on an investment. It is usually expressed as a percentage of the total sum invested.
Interest Rate Risk
The risk borne by fixed interest securities, and by borrowers with floating rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed interest securities declines and vice versa.
Interest Rate Sensitivity
The degree of movement in the price of a security, usually that of a bond, resulting from moves in interest rates.
International Monetary Fund (IMF)
An international organisation founded in 1947 to promote maintenance of equilibrium in the balance of payments among the various nations of the world. The functions of the IMF include the levying of quotas on member nations to create a pool of funds available to be loaned to nations facing balance of payments problems.
Without a valid will.
This refers to the range of Skandia pension funds where the pricing includes an initial charge within the Offer Price.
Capable of being invested. When comparing investment returns against a benchmark, it is preferable that the benchmark be an investible one in order that realistic comparisons can be made between actual and benchmark performance.
An asset acquired for the purpose of producing income and/or capital gains for its owner.
A financial expert trained to analyse the activities and future prospects and earnings of companies and securities for the purpose of investment.
The general economic, political, legal and market conditions within which an investment is made.
Investment Grade Bonds
Bonds which have a credit rating which is sufficient for them to be purchased by most institutional investors.
Investment Management Agreement
A contractual agreement between an investor and an investment manager stating the terms and conditions applying to management of the stated assets.
An organisation or individual that specialises in the investment of a portfolio of securities on behalf of individuals and/or organisations subject to the guidelines and directions of the investor. Investment managers offer both pooled investment products and segregated portfolios to a range of clients including pension funds, institutions and private investors.
The set of principles or systems used by investors to govern the way they manage portfolios. Sometimes confused with investment style, which tends more to be associated with the level of risk in the portfolio.
A company that invests in shares of other companies. When investing in an Investment Trust customers actually own shares in the Investment Trust rather than owning the shares it invests in. Investment Trusts are closed ended investment vechicles.
A person whose principal purpose is to invest money prudently and productively over the longer term with the investment objectives being achievement of a reasonable return and capital appreciation to preserve purchasing power. The opposite of a Speculator, who will sacrifice safety of principal for the possibility of larger gains.
Individual Savings Account â€` A savings vehicle that allows customers to invest in equities, life assurance policies or save in cash without having to pay tax on the returns gained from them.
A life policy option where life assurance is taken out by one (or more) individuals, the payout being made on the death of first Life Assured or the death of the last remaining Life Assured.
Joint Life First Death
Where a bond ends on the earlier of full encashment , or the death of one of the Lives Assured.
Joint Life Last Death
Where a bond ends on the earlier of full encashment , or death of the last remaining Life Assured.
A high risk, high yield debt security rated below triple B.
Key Features Document
A document that will contain key information on a financial product, such as: 1. An explanation of the purpose, commitment and risks involved, as well as answers to some of the most common questions asked. 2. Details of what the policy might be worth in future years. 3. Details and explanation of the charges made on the policy.
Key Person Insurance
A life assurance policy to cover the death of a business`s key employee. It pays out a lump sum that is designed to cover the costs of finding and training a replacement as well as covering any loss of profitability.
The inception date of a fund.
Level Term Assurance
A simple form of life assurance that pays out a lump sum if the policy holder dies within a specified time period
A synonym for gearing (e.g. using derivative investments to over-invest a portfolio).
Opposite of assets â€` i.e. debts. In the case of pension funds, a stream of obligations (pension payments).
Abbreviation for London Interbank Offered Rate, the interest rate at which major international banks in London will lend cash to each other, and thus an indicator rate for international lending.
An insurance policy which pays out a lump sum on the death of the policy holder
The Life Assured is the person (or persons) covered by the life insurance contract that has been taken out with the Life Company. You can take out life insurance on your own life or the life of other individuals such as your spouse or business partner, provided you can show that you have a financial interest in them. It is also possible in these circumstances to take out a joint life policy of which there are two main types; a joint-life first-death policy which pays out on the first death of one of the lives assured; and a joint-life last-survivor policy pays out on the death of the last of the lives assured.
Life assurance is one of the oldest forms of insurance, but now comes in a variety of forms. Put simply, it is a contract between an insurance company (the Life Company) and individual(s), where the insurance company pays out, in return for premiums paid, if the insured person dies before the end of the contract.
A pool of money held by a Life Company into which all life assurance policy holders` premiums are paid and all claims are made from.
Limited Price Indexation (LPI)
Pensions paid by an Occupational Pension Scheme, and Protected Rights paid by an Appropriate Personal Pension Scheme must increase by at least 5% per annum, or the increase in the Retail Price Index, whichever is less. It applies to pensions accrued in respect of service after 5 April 1997. LPI will be removed for all money purchase benefits including Protected Rights from April 2005.
A market where selling and buying can be accomplished with ease, due to the presence of a large number of interested buyers and sellers willing and able to trade substantial quantities at small price differences.
The ability of an investment to be easily converted into cash with little or no loss of capital and with minimum delay. An example of a highly liquid asset is a short term bank bill, while property is a relatively illiquid investment. For many securities, the degree of liquidity depends on the depth of the secondary market for that security. Also refers to the maintenance of cash and reserves by a financial institution to fund withdrawals by depositors, unit holders or clients.
The risk that an investment may not be easily converted into cash with little or no loss of capital and with minimum delay.
A company whose shares are traded on the stock exchange and are able to be bought and sold by members of the general public.
A Share which is quoted on a Stock Exchange. Specifically in the UK, this would be a listing on the main market (as opposed to the unlisted securities market or the third market).
A security bearing a fixed rate of interest. The capital (the amount loaned) is repaid after a given period of time.