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HSBC - glossary Category: Economy and Finance More specific: Investing County & Date: UK, 30092007 Words: 200

Accrued interest
Interest that has been earned but not yet paid.

Accumulating Net Asset Value (ANAV)
A method of compensating money market fund investors through increasing the value of each fund unit rather than through paying a dividend.

Active management
An approach to investment management which aims to outperform rather than match a particular market index or benchmark through asset allocation and/or stock selection decisions. See also index tracking fund and passive management.

Active risk
The risk arising from active management in excess of the risk that would be incurred if the portfolio were passively managed.

Actuary
Adviser on financial issues relating to risk, probabilities and mortality, most frequently in relation to the financing of pension schemes and insurance companies.

Added value
Performance in excess of a stated benchmark or index.

Additional Voluntary Contributions (AVCs)
Employee contributions, over and above any compulsory contributions, to a tax-approved occupational pension scheme. An employee may choose to pay AVCs in order to secure additional benefits in the scheme.

Alternative investments
Investments that do not fit into the mainstream areas of equities, bonds, cash and property and which normally form a small proportion of a portfolio. Examples are private equity/venture capital and hedge funds.

American Stock Exchange (Amex)
An exchange covering stocks not large enough for inclusion in the New York Stock Exchange (NYSE).

Annual Percentage Rate (APR)
The full cost of debt that is paid by borrowers, expressed as an annual percentage.

Annuity
An annual allowance. Normally paid in the form of a pension.

Arbitrage
Profiting from differences in price when the same security, currency or commodity is traded on two or more markets. By taking advantage of disparities in prices between markets, arbitrageurs are making these markets trade more efficiently.

Asset allocation
The distribution of investments across categories of assets, such as equities, bonds and cash or across sectors in a single asset class. Asset allocation affects both risk and return and is a central concept in financial planning and investment management.

Asset class
Category of assets, for example, equities, bonds, property and cash.

Asset-backed Securities (ABS)
Bonds backed by a pool of assets, such as car loans or credit card receivables.

Authorisation
Required by the Financial Services Act 1986 (FSA86) for any firm that wants to conduct investment business in the UK. In November 2001, the FSA86 was replaced by the Financial Services and Markets Act (FSMA). The body regulating the UK market is the Financial Services Authority (FSA).

Back office
Administration and support functions including records, legal, accounting and compliance office.

Balanced management
An investment portfolio that has exposure to all of the main asset classes and which may include alternatives.

Bargain
Another word for transaction or deal. It does not necessarily imply that a particularly favourable price was obtained.

Basis point (bp)
1/100th of 1 percent, or 0.01 percent. Therefore 100bps = 1%.

Bear
Person who expects market prices to decline or stagnate. Such a person or view is often called bearish. See also bull.

Bear market
Sustained decline in market prices. See also bull market.

Benchmark
Measure against which a portfolio's performance is assessed. For total assets, the benchmark may be customised or be a peer group average or median.

Beneficial owner
The underlying owner, who enjoys the benefit of owning a security or property.

Best execution
Best execution is more than the achievement of the 'best price' and, while not insignificant, price alone cannot reflect all the requirements of a customer order and other relevant costs must also be considered. Factors that need to be taken into account in best execution are order type, size, settlement arrangements and timing, together with any other conditions set by the customer.

Beta
Statistical measure of how sensitive a security or portfolio is to movements in the market index. For example, a security with a beta of 1 is expected to give the same return as the index. Higher beta stocks or portfolios (beta greater than 1) are expected to outperform in rising markets and underperform in falling markets. Low beta stocks (beta less than 1) are considered to be defensive stocks.

Bid price
Price at which a security or a unit in a pooled fund can be sold. See also offer price.

Bid-offer spread
Percentage difference between the buying (offer) and selling (bid) price of a pooled fund unit or a security.

Bloomberg
Company which provides market and investment information including real-time share price information.

Blue chip company
Informal term for a large, well-known company with a long record of profit growth, strong branding and consistent record of paying dividends.

Bond-debt
A tradeable loan issued by a borrower for a fixed period of time paying interest, known as the coupon, which is fixed at the issue date and is paid regularly to the holder of the bond until it is redeemed at maturity when the initial loan (principal) is repaid.

Bonus issue
Also known as a capitalisation issue or scrip issue. This is when a company issues free shares to its existing shareholders in proportion to their holdings. No money changes hands and the price of each share falls to maintain the value of the holding. This is usually done to make the shares more tradeable.

Book value
Value at which a security is recorded on a balance sheet, usually the cost of buying it, less any depreciation. If securities have been acquired at different times and different periods, the book value will reflect the average buying cost. See also market value.

Book-entry system
An accounting system that allows the transfer of claims (e.g. securities) without the physical movement of paper documents or certificates.

Bottom up
Approach to investment management that gives priority to the identification and selection of companies to build an optimum investment portfolio. This approach places emphasis on stock selection within a portfolio. See also top down.

Broker
An individual or firm that acts as an intermediary between buyers and sellers, usually for payment of a commission. It may also buy securities to sell for a profit while fulfilling its role as a dealer.

Bull
Someone who expects market prices to climb or rally. Such a person or view is often called bullish. See also bear.

Bull market
Period of sustained stock market growth. See also bear market.

Call option
The purchaser of a call option has the right, but not the obligation, to buy an asset at a specified price on or before an agreed date. See also put option.

Capital Asset Pricing Model (CAPM)
An economic model for valuing stocks. The simplest version states that the expected excess return of a security over a risk-free rate of return is a function of its beta.

Capital Gains Tax (CGT)
Tax that may be due following the sale of an asset at a profit.

Capital market
Any financial market upon which securities are traded. Examples are the London Stock Exchange, the New York Stock Exchange and the Paris Bourse.

Capitalisation
Total market value of securities issued by a company, industry, sector or market(s). It is calculated by multiplying the market price per security or share by the number of securities issued.

Capitalisation issue
Another term for a bonus issue or scrip issue.

Cashflow Return on Investment (CFROI)
Projected generated cash as a proportion of market capital. CFROI avoids the focus on reported earnings and allows company comparison across both sectors and markets.

Chartist
Individual who studies charts of movements in financial and economic indicators and stock market prices. The aim is to predict future changes in stock market prices and thereby identify cheap stocks.

Chinese wall
Separation of activities in a financial institution to prevent confidential and price sensitive information from passing from one area to another. For example, it is normal practice to separate corporate finance, stockbroking and fund management.

Clean accounting basis
Where the market value of an asset(s) excludes any income or dividends that are due to an investor but have not yet been paid.

Collar hedge
A means of stabilising portfolio returns by obtaining protection against a major decline in portfolio value in exchange for sacrificing part of the portfolio's appreciation in a major rally. A collar hedge can be achieved through a combination of put options and call options.

Commercial paper
Short-term debt issued by banks, corporations and other borrowers. The debt is unsecured and is backed only by the company's reputation. It is like an I.O.U. with interest.

Commission
Fee paid to a stockbroker for buying or selling a security, usually a percentage of the cost. Commission varies across markets and between brokers.

Commodity
Bulk goods traded on an exchange. Examples are gold, silver, platinum, coffee, grain and sugar. Anything mined is a hard commodity, anything grown is a soft commodity.

Compliance office
The team responsible for ensuring that a company acts within the rules and regulations established by Parliament and the regulator.

Concentrated portfolio
A portfolio having a relatively small number of securities. This relative lack of diversification is normally considered to be a more risky but potentially higher rewarding approach.

Consideration
Value of a securities transaction before dealing costs are taken into account.

Constraints
Limits or restrictions imposed on an investment manager in relation to particular securities, sectors or markets. Constraints may be imposed for various reasons, for example risk reduction or ethical considerations.

Continuous Linked Settlement (CLS)
A global real-time settlement system for foreign exchange transactions. It aims to eliminate the currency risk that arises when purchasing a security in one time zone that is traded and settled in a different time zone due to delays caused by the time difference.

Contract note
Written record of an agreement to buy or sell securities.

Convertible security
Any security such as a bond that, under certain conditions, the owner can opt to convert into another security, such as an ordinary share.

Core-satellite investment
The partitioning of a pension scheme's asset between a core portfolio of lower risk holdings and a more actively managed (satellite) portfolio.

Corporate bond
Security issued by a corporation (as opposed to a government) promising to pay interest to the holder of the bond until it is redeemed at maturity when the principal amount is repaid. Also referred to as credit.

Corporate governance
The means by which shareholders govern the management of a company through the use of voting powers.

Country allocation
Integral part of an asset allocation process that emphasises desired weightings in particular countries and geographic regions.

Coupon
The interest rate payable (usually six-monthly) on a bond based on the value of the amount loaned.

Credit
Non-government bonds, including corporate bonds.

Credit rating
Rating given to a company or institution by a credit rating agency as an indication of the likelihood of default on its bonds or other debt. The highest (most favourable) rating is AAA (triple A).

Credit risk
The risk of a company defaulting on its debt by missing capital (principal) or interest payments (coupon).

Credit spread
Difference in the yield available on a corporate bond compared to a Government bond of similar maturity. Credit spreads will generally be higher for companies with lower credit ratings to compensate investors for the additional risk undertaken.

Currency hedging-Currency overlay
Reduction or elimination of exchange rate risk using forward contracts, future contracts or options.

Currency option
A derivative giving its holder the right, but not the obligation, to buy or to sell a certain amount of a foreign currency at a predetermined price on a specified date.

Custodian
A company which is responsible for the safekeeping of assets, income collection and settlement of trades. Ideally the custodian is independent of the portfolio manager's company.

Cycle
Economies go through periods of expansion and contraction called cycles. A typical market cycle would start with a period of low economic activity and low confidence, causing inflation and interest rates to fall. These low interest rates stimulate economic activity. As the economy improves, company earnings rise, giving an impetus to share prices. This expanding economy puts upward pressure on inflation; company earnings are hit and share prices slump. This then leads to the start of another cycle. Cycles vary in intensity and duration.

Cyclical stock
Security that is sensitive to movements in the business cycle, for example, financial stocks (that are generally interest rate sensitive) and capital goods (commerical machinery, vehicles, building materials). See also defensive stock.

Debenture
Loan made to a company secured against assets of the company.

Debt-Equity ratio
A company's debt divided by its issued share capital. A high ratio can pull the share price down, as the company will probably have to seek additional funds from shareholders. See also gearing.

Defensive stock
Security that is less sensitive to movements in the business cycle. An example could be utility stocks that usually show steady performance and income, irrespective of the stage of the business cycle. See also cyclical stock.

Defined Benefit (DB)
Pension arrangement where the benefits payable to members at retirement are clearly specified, usually as a percentage of salary at or near retirement. The employer contributions that are required to ensure that this commitment can be met will vary depending on the scheme's experience (investments, mortality and leavers) and the benefits to be provided. Final salary is the main type of Defined Benefit.

Defined Contribution (DC)
Pension arrangement where the rate of contribution paid by the employer and/or the employee is defined (usually as a percentage of salary). The benefits paid to members will depend on the contributions paid into the scheme on behalf of the member, the investment return earned on those contributions and the terms available for converting the fund into a pension at retirement. Also known as money purchase. The resultant pension benefit is dependent on the investment return achieved by the member's assets.

Derivatives
Derivatives are the collective term applied to certain types of financial instruments such as future contracts, swaps and options. They represent contracts between two parties and their value depends on the price of some other assets.

Devaluation
Formal reduction in the value of a currency against other currencies.

Dilution
Effects on earnings per share and book value per share if all convertible bonds were converted into shares and all warrants or stock options were exercised.

Dilution recovery-levy
Amount levied on a transaction (sale or purchase) of units in a pooled fund to ensure that existing unit holders do not have their investment performance reduced due to transaction costs resulting from significant cashflow in to or out of the fund.

Dirty accounting basis
An accounting methodology that includes any coupon income and dividends that are due to the investor, but have yet to be paid.

Discount broker
Stockbroker who charges low commission rates and usually gives very little advice.

Discount note
A short-term bond (with a maximum maturity of 360 days) issued at a discount to its par value. It pays out no interest but investors receive par value upon maturity. Also called a zero coupon bond.

Discount rate
Rate of interest used to express a future value or stream of income in today's money values.

Diversification
Risk reduction achieved by spreading investment across a range of assets or a range of securities in the same asset class.

Dividend cover
Company's total earnings divided by the total amount it has paid in dividends for a particular period. This is an indication of a company's ability to meet its dividend payments.

Dividends
Regular payments from earnings by companies to their shareholders. The level of dividend payment is decided upon periodically by company management.

Duration
Average time-weighted life of the payment streams from a bond taking into account the present value of each payment. Duration is a measure of interest rate sensitivity, the longer the duration, the more sensitive the price of the bond to changes in interest rates. Closely matching durations of assets to the liabilities of a pension fund aims to minimise the risks inherent in changes of interest rates.

Earnings
Net profits of a company available for distribution to shareholders.

Earnings Per Share (EPS)
Company's annual earnings divided by the number of shares it has issued.

Earnings yield
Company's earnings per share divided by its current share price. This is the inverse of the price/earnings (P/E) ratio.

Economic indicator
Statistic which gives an indication of the performance or trends in a certain element of an economy. A commonly used indicator in investment analysis is price inflation.

Economist
Person who analyses trends in economic data and forecasts factors such as economic growth, likely trends in interest rates and inflation, to determine the impact of such factors on financial markets.

Emerging market
Stock market in a developing or newly industrialising country. Such markets can deliver high returns due to the rapid pace of industrialisation, but can be risky due to low liquidity and political instability.

Equities
Commonly used term for ordinary shares.

Equity risk premium
The extra return required to invest in equities rather than a risk free asset to compensate for the additional risk/volatility associated with equities.

Ethical investment
Ethical investment is the term given to investments in companies making a positive contribution to an ethical issue or avoiding a negative contribution. Such issues could include the environment, arms or cigarette manufacturing.

Euro Interbank Offered Rate (EURIBOR)
Sponsored by the European Banking Federation, EURIBOR is the interest rate at which major banks lend money to each other. EURIBOR is calculated daily at 11.00 central european time and covers periods ranging from one day to one year.

Euro Overnight Index Average (EONIA)
An overnight interest rate representing the weighted average of all overnight unsecured lending transactions in the interbank market. EONIA is widely used as the underlying rate for derivatives transactions within the eurozone.

Euroland-eurozone
There are 12 countries which have so far entered the European Monetary Union (EMU). They are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.

European Monetary Union (EMU)
See Euroland/Eurozone.

Excess return
The return in excess of a benchmark return.

Exchange rate
Measure of the value of one country's currency compared to another.

Final salary
See Defined Benefit (DB).

Financial Services Authority (FSA)
The Financial Services Authority (FSA) is the designated agency taking on the responsibilities of the Financial Services Act. It was formed in 1985 and has a constitution like any other company. In order to gain a balanced view, the governing body of the FSA comprises a mixture of both practitioners and users of the market.

Fixed interest bond
A bond where the regular interest payment or coupon amounts are specified at the time of issue. See also index-linked bond and floating rate note.

Floating Rate Note (FRN)
A bond or loan instrument whose interest varies in line with short-term interest rates.

Flotation
First issue of shares by a company on a stock exchange. Also known as an initial public offering (IPO)

Forex
An abbreviation for foreign exchange, the market where currencies are traded.

Forward contract
Contract to buy or sell an asset at an agreed price in the future. See also futures contract.

Forward exchange rate
Exchange rate fixed today for the purchase or sale of a currency at some future date.

Forward interest rate
Interest rate fixed today on a loan to be made at some future date.

Front office
Dealing, research, client service and marketing activity of an investment management company. See also middle office and back office.

FTSE 100 (FTSE 250-FTSE 350-FTSE Small Cap)
The Financial Times Stock Exchange Index for the top 100 companies in the UK measured by market value and the most frequently quoted measure of the UK market is the FTSE 100 or 'FOOTSIE'. The FTSE 250 measures the next 250 largest companies. The FTSE 350 consists of the FTSE 100 and FTSE 250 companies. The FTSE SmallCap consists of companies within the FTSE All-Share Index that are not large enough to be constituents of the FTSE 350. The cut off capitalisation for each segment is dependent on market conditions and is therefore variable.

FTSE All-Share Index
The Financial Times Stock Exchange Index for the main UK stock exchange. It covers about 700 companies, across a wide range of market capitalisations. It was established with a base value of 100.00 on 10 April 1962.

Fundamental analysis
An attempt to determine the true value of a security by examining all the factors that impact on its price and the way that price moves. The aim is to decide whether the market price reflects future expectations. Also called qualitative analysis.

Futures contract
An agreement between two parties under which the seller promises to deliver a specific asset to the buyer on a specific future date for a predetermined price to be paid on the delivery date.

GDP-GNP
Gross Domestic Product/Gross National Product. Measures the amount of goods and services (product) created each year. GDP measures the product of the inhabitants of a particular country. GNP measures the product of the nationals of a particular country. GDP is GNP plus the foreign investment earnings of nationals.

Gearing
a. From an accounting point of view, the amount of a company's total borrowings divided by its share capital. High gearing means a proportionately large amount of debt that may be considered to be more risky. b. In investment analysis, a highly-geared company is one where small changes in underlying conditions produce big swings in profits. Gearing can be financial, or operational if, for example, a company has large fixed overheads. c. In terms of a portfolio of assets, gearing the portfolio means borrowing cash to purchase more assets so that the exposure to this asset is greater than the value of the original portfolio. Instead of borrowing, contracts are often used to gear a portfolio.

Gilt (-edged)
A bond issued by the UK Government. Given the nature of the issuer there is a very low probability of default.

GIPS (Global Investment Performance Standards - GIPSTM)
A set of minimum performance presentation standards for investment managers that are sponsored by the Association of Investment Management and Research (AIMR) and intended for global use. They aim to ensure transparency in performance reporting and assist comparisons.

Growth stock
Company that is expected to achieve above average earnings growth. Growth stocks normally have a high price/earnings ratio relative to the market as a whole, as investors anticipate that earnings will increase in the future.

Hedge fund
Fund which seeks to generate investment returns by using investment strategies and tools such as short selling, leverage, program trading, swaps, arbitrage and derivatives. Returns tend to be unrelated to equity markets.

Hedging
Action taken to protect the value of a portfolio against a change in market prices. It is usually used to reduce, minimise, or eliminate risk although similar techniques can also be used to speculate in a market.

High yield bond
A bond that has been given a relatively low rating by independent agencies. Investors are offered a higher rate of return for taking on the additional risks.

High yield stocks
Shares which have a higher than average dividend yield or those where a relatively high proportion of the total return is derived from dividend income. Typical examples of high yield stocks are utilities.

HOLT
Software used by some investment managers to calculate and assess, amongst other measures, Cashflow Return on Investment (CFROI).

Index
a. Measure updated regularly that gives a representation of the movement in value of a particular market or a specified group of securities. b. List of prices or other characteristics representing a particular group of goods or services which give an indication of movements over time, for example, the Retail Price Index (RPI), the average earnings index and the retail sales index.

Index linked bond
A bond where the future interest payments and the final redemption proceeds are linked to an index e.g. the Retail Price Index. Such stocks provide some protection against inflation where fixed interest bonds may not.

Index-tracking fund
Investment fund which aims to match the returns of a particular market index. The fund may hold all the stocks in the particular index or, more commonly, use a mathematical model to select a sample of stocks that should perform as closely as possible to the index. Sometimes referred to as passive management.

Industry sector
Companies listed on stock exchanges are usually categorised according to their principal area of activity, for example, banks, telecommunications, oils, pharmaceuticals and retailers.

Inflation
A measure of the rate of increase in either prices or earnings. In the UK, price inflation is usually measured by the movement over time in the Retail Price Index.

Information ratio
The number of units of excess return generated for each additional unit of risk taken

Initial public offering
The first sale of stocks when a company decides to go from private to public ownership.

Insider trading
Knowingly trading in shares when in possession of price-sensitive information that is not known to the market.

Institute of Investment Management and Research (IIMR)
Professional institute representing the investment analyst profession and offering a qualification in investment management and research.

Institutional funds
Assets managed by investment banks, life assurance companies and fund management companies on a collective basis for corporate clients rather than private individuals. Includes pension schemes, insurance funds, unit trusts and investment trusts.

Interest rate
Rate of interest. Usually linked to movements in the Bank of England base rate in the UK.

Interest rate swap
An agreement between two parties where one party exchanges a fixed regular payment in return for a variable payment linked to an interest rate.

Internal Rate of Return (IRR)
An accounting method for calculating the return achieved on a (potential) investment. The higher the IRR the more attractive the proposal.

International Central Securities Depository (ICSD)
An institution that provides clearing and settlement facilities for cross-border transactions in domestic securities and/or international securities transactions.

Investment analyst
Individual who specialises in the analysis of companies and their performance. An analyst normally gathers information by reading company annual reports, researching the product markets in which a particular company operates, visiting manufacturing sites and meeting with key company personnel.

Investment committee
An appointed sub-group of a pension scheme's trustee board responsible for various aspects of the scheme's investment strategy.

Investment consultant
Organisation or individual that advises on investment matters, such as the appointment of investment managers, performance measurement and asset allocation strategy but is not normally involved in the management or trading of securities.

Investment grade bond
Corporate bond that has been given a relatively high rating by the credit agencies. Offers higher expected returns than government bonds/gilts as a reward for taking on additional risk. Also known as credit, the rating rank from AAA (highest) to BBB (lowest).

Investment management firm
Organisation that invests assets for third parties.

Investment objective
The result desired by an investor or fund. It may be expressed as a specific performance target relative to the benchmark over a specified time period (e.g. to outperform the benchmark by 1% pa over particular time periods) or as a general statement of intent.

Investment performance
Total return earned on a portfolio of assets over a particular period.

Investment performance measurement
Calculation and analysis of investment performance usually including a review of asset allocation and stock selection. Returns may be compared with a benchmark or index or with the actual returns achieved by other managers or portfolios.

Investment risk
a. Chance that a loss will be sustained on an investment through company failure, default on loans, fraud or other factors. b. The volatility of movements in the value of a security or market usually measured by the standard deviation of returns over a given period.

Investment strategy
An investor's long-term distribution of assets among various asset classes taking into consideration, for example, the goals of a pension scheme's trustees, their attitude to risk and time-scale.

Investment trust
A closed-end vehicle that buys and sells stocks and shares in selected companies including other investment trusts with the aim of making a profit for its own shareholders. Changes in the price of units are driven by supply and demand owing to the limited supply of units.

Junk bond
Corporate bond that has been given a low rating by credit rating agencies. Junk bonds offer higher expected returns to compensate for the increased risk and are graded below BBB.

Leverage
Use of borrowed money to increase returns. See also gearing.

Liabilities
Payments due to be made (e.g. future pension payments).

LIBID (London Interbank Bid Rate)
An interest rate at which banks borrow from each other for periods ranging from overnight to five years. Set at one eighth of a percent (0.125% or 12.5bps) below LIBOR.

LIBOR (London Interbank Offered Rate)
A daily published rate reflecting the average rate at which a number of banks in the London market offer to lend on the interbank market calculated at 11.00 GMT, the daily rate is published for different periods and for different currencies.

Lifestyle
The adjustment of a member's defined contribution (DC) scheme asset allocation in line with a predetermined strategy, linked to the member's term to retirement. The aim is to manage risk for each individual member and at the same time maximise the potential for growth over a member's working life. Typically, as retirement approaches, the money in individual accounts is gradually switched automatically into investments which reduce the various investment risks to which members are exposed.

Limited Price Indexation (LPI)
A measure of retail price inflation (RPI) with a cap of 5%pa and floor of 0% pa. Often used to limit future pensions increases following retirement.

Liquid asset
Asset that can be readily and inexpensively turned into cash.

Liquidity
a. The ability to convert an asset to cash quickly. The degree to which this can be done without affecting the price of that security. b. Cash management.

Listing particulars
When a company applies to be listed as a member of the Stock Exchange and have its share price quoted, it has to give detailed information about itself which is published in the form of a prospectus.

Long bond
Bond that usually has at least ten years to run to maturity.

Long-long position
The buying of a security with the expectation that it will rise in value. Also, the act of holding proportionately more of a stock in a portfolio than its level in an index. See also short.

Long-short strategy
Buying stocks you have a positive view on and selling stocks you have a negative view on, generally through the use of deriviatives.

Macro economics
The study of how the 'bigger picture' economic factors behave and how this affects stock markets.

Management charges
Fees levied by investment managers, usually in the form of a percentage of assets under management.

Manager structure
The combination of one or more managers to invest a specified pool of assets.

Mandate
Description of the type of service that an investor requires of a manager. For example, high-risk global equity management.

Mark-to-market
The act of recording the price or value of a security, portfolio or account to calculate profits and losses. Usually carried out daily.

Market capitalisation
The market value of an entire company, calculated by multiplying the number of shares outstanding by the price per share.

Market maker
Organisation that deals in securities. Market makers quote buying and selling prices for the shares in which they wish to deal.

Market risk
Level of risk in the market that cannot be eliminated by diversification. The risk that a market (or index) will fall in value.

Market value
a. The price at which a security is trading and could presumably be purchased or sold. b. What investors believe a firm is worth calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Maturity
Length of time until the last interest payment and the principal of a bond is redeemed.

Median
That which lies in the middle. For example, a median performance among a universe of five managers would be the third ranked manager. A median return is not the same as the mean and may be above or below it depending on the distribution of returns in the sample.

Mid market price (Mid price)
The average value of the bid price and offer price of a security or fund unit.

Middle office
The teams responsible for managing risk, information technology and calculating performance, profits and losses.

Momentum
Extent to which stock market values are supported by a strong level of investor interest and changing prices.

Money market
Market for short-term loans and cash deposits.

Money purchase
Alternative term for Defined Contribution (DC).

Money weighed rate of return (or internal rate of return)
Actual return achieved over a period that does not adjust for the timing of cash flows. It is therefore not suitable for comparing investment manager's performance where external cash flows are beyond the manager's control. See also time weighted rate of return.

Mutual fund
A pool of capital provided by small as well as institutional investors and invested in a portfolio of securities. There are two types of mutual funds: open-ended and close-ended mutual funds. While close-ended mutual funds have a predetermined amount of capital to be invested, open-ended mutual funds do not. See also investment trust and open-ended investment company.

Myners Report-Review
Report on Institutional Investment produced by Paul Myners in Spring 2001.

Net Asset Value (NAV)
Company assets less all liabilities also known as shareholders' funds.

Net Present Value (NPV)
Refers to the present value of an investment based on the calculation of its future cash flows minus the costs. See internal rate of return (IRR).

Netting
An agreed offsetting of positions or obligations by trading partners or participants. The netting reduces a large number of individual positions or obligations to a smaller number of obligations or positions, thereby reducing the overall credit, liquidity and settlement risk. Netting may take several forms that have varying degrees of legal enforceability in the event of default of one of the parties.

Nominal
The face value of a bond, usually expressed in single or hundred currency units (e.g. ?G1.00, $100.00). It is the value that the coupon is based on and is not necessarily the same as the price at which a bond is purchased. Also called the par value.

Nominal interest rate-Nominal rate of return
Absolute return before adjustments for inflation.

Offer price
Price at which a security or a unit in a pooled fund can be purchased. See also bid price.

Open-ended Investment Company (OEIC)
A limited company listed on the stock exchange whose sole aim is to invest in securities issued by other entities. Unlike an investment trust, there is no limitation on the number of shares that can be issued (i.e it is an open-ended structure). The value of the shares is determined by the OEIC's underlying assets; however, there is no bid-offer spread. OEICs can be the underlying structure for a single fund or the umbrella fund for a family of sub-funds. See unit trust.

Option
Right, but not obligation, to buy or sell a security at an agreed price within an agreed time period. The right to buy a security is known as a call option; the right to sell a security is known as a put option.

Ordinary share
Share in the ownership of a company that gives the holder the right to receive distributed profits and to vote at general meetings of the company. An ordinary shareholder ranks behind all other creditors/investors if the company is wound up.

Overweight
Exposure to a specific asset (or asset class) which is higher than the proportion it represents in the market index or benchmark against which the portfolio is measured. Investment managers generally may take overweight positions in shares or sectors they expect to outperform in order to add relative value to the portfolio.

Par value
The face value of a bond and the amount that will be paid back to the investor on maturity. Prices of bonds rise and fall in line with supply/demand factors and should not be confused.

Passive management
Investment approach which aims to match the returns on a particular market index. See index tracking fund.

Performance attribution
Process which aims to weight the sources of over or under performance to the different steps taken in the investment management process, such as asset allocation, stock selection, currency

Performance measurement
The calculation of a fund/scheme's historic return on its investments. This can be performed on total assets or on individual asset classes. For the purposes of analysing a manager's performance relative to benchmark, performance is calculated on a time-weighed rate of return basis which is unaffected by the size and incidence of external cashflow (which are outside the manager's control).

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