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Henderson Global - Investment glossary Category: Economy and Finance > Investing Date & country: 25/09/2007, UK Words: 223

Accumulation units-shares
With this type of unit/share any income earned remains accumulated within the price of your unit/share, increasing the value of your holding.

Active managed funds
Funds which aim to outperform a benchmark index such as the FTSE 100. The aim is for the fund manager to manage the fund's investments in such a way that the fund will generate better returns than you might receive in a passive managed fund.

Announcement Date
The date the dividend details are released to the London Stock Exchange.

Annual management charge (AMC)
A fee paid to the fund manager once a year which covers the cost of investment management and administration. It is normally around 0.75% - 1.5% pa and is charged to the fund.

Annual Report
Includes details of the fund's investments and how it has performed with more general financial information relating to the fund. It is sent to you by your fund manager at the end of each financial year.

Approved Investment Trust Company
An investment trust company that satisfies the requirements of Section 842 of the Income and Corporation Taxes Act 1988 set out by the Inland Revenue. Trusts that meet these criteria are exempt from having to pay tax on the capital gains they realise from sales of the investments within their own portfolios.

Asset allocation
A term to describe how your money is invested. In most cases, the fund manager will spread money across a range of different assets and companies in order to diversify your holdings and help to spread risk.

Assets
Anything owned or controlled that has value, but usually, for investment trusts, it refers to equities, bonds and cash. The underlying assets of an investment trust will vary depending on the company's objective.

Authorised Corporate Director (ACD)
The term used to describe the manager of an OEIC fund. An ACD has the same role and responsibilities as their unit trust equivalents, known as the fund manager.

Authorised fund
A unit trust or OEIC that is authorised by the Financial Services Authority (FSA) for promotion to the general public in the UK. All unit trusts and OEICs which are on sale to a retail investor in the UK are authorised by the FSA.

Balanced Fund
A type of fund which restricts its investment in equities, to a maximum of 85% of the fund's holdings, in order to invest in other types of investments such as bonds. This type of fund aims to benefit from the performance of its bond investments when equities are not performing well and vice versa.

Benchmark
A measure against which the performance of an investment trust is compared or against which it sets its objective. For example, a UK invested investment trust might have the FTSE All-Share as a benchmark and a stated objective to outperform this.

Bid price
The price at which you will deal when you sell your investment trust shares which will be lower than the mid and offer prices.

Bid-Offer spread
For dual-priced unit trusts this is the percentage difference between the buying and selling prices of your units. The buying or offer price is normally higher than the selling or bid price as it will include an initial charge to be paid to the fund manager for setting up and administering your units.

Blue chip
Large well established companies which are generally considered to be stable. In the UK, such British companies are usually listed on the FTSE 100 index.

Bonds
Also known as fixed interest securities bonds are investments which pay a fixed rate of interest and have a fixed term. Governments or companies may issue them. Those issued by Governments are known as gilts. Not to be confused with investment bonds issued for individual investors usually by insurance companies.

Book Close
This allows the registrars to look at the list of investors whose names appear on the register, and as at books close date those investors will receive the benefit from the company. (Sometimes referred to as a Record Date)

Borrowing Powers (also see Gearing)
The limit of the total amount that a company and its subsidiaries may have outstanding at any one time, in respect of monies borrowed.

Break-up Basis
The most conservative formula for calculating NAV, by deducting prior charges at their redemption value. In effect, the break-up value of the trust is that amount that would be received if all its assets were disposed of.

Buy-back
An increasingly popular way for investment trusts to return cash to their shareholders is through offering to buy back a proportion of shares they currently hold. Trusts need to seek the permission of their shareholders to do this and will typically put a motion to their AGMs allowing them to buy back a proportion of their total shares (up to 15%). This process is also used to reduce the discount to NAV, by reducing the number of shares in issue.

Cancellation price
For dual-priced unit trusts this is the lowest possible price at which an investor can sell units back to the manager under FSA regulations. It excludes exit charges. The cancellation price represents the proceeds the fund would receive if the fund's assets were sold.

Capital
The amount of money you initially put into your savings or investments before it receives any interest or capital growth. In a fund 'capital' can also refer to the assets held by the fund excluding any income the fund may receive.

Capital gains tax
Capital gains tax (CGT) is the tax which you may have to pay if you sell shares at a profit.

Capital gains tax
Tax paid to the Inland Revenue on any increase in the value of your savings or investments. The tax is payable on the capital profits you make when you sell your units/shares. There is an annual exemption limit; for the current tax year this is '8,200.

Capital growth
The increase in the value of your investment, excluding any income you have received from it.

Capital shares
In a split capital investment trust, capital shares are entitled to all of the surplus assets on the wind-up of the trust, after repayment of any prior charges. They are generally regarded as one of the highest risk types of investment trust shares.

Capital structure
The different amount and type of shares an investment trust issues. Particularly important when considering split capital investment trusts.

Cash
In saving and investment terms refers to a bank or building society deposit account in which your capital is secure.

Cash and Fixed Interest
The percentage of total assets held in cash and fixed interest stocks, excluding convertibles and unlisted fixed interest securities held for investment.

Cash funds
Alternative name for money market funds.

CAT standards
Voluntary standards introduced by the Government which can be applied to a number of products including ISAs. CAT stands for Charges, Access and Terms but does not guarantee performance or suitability of the fund.

Cautious Managed Fund
A type of fund which restricts its investment in equities to a maximum of 60% of the fund's holdings, in order to invest in other types of investments such as cash and bonds. This type of fund is considered to be more 'cautious' than funds which invest more of their holdings in equities, as more of their portfolios are diversified across less risky investments in cash and bonds.

Child Trust Fund (CTF)
A savings and investment account for children born on or after 1 September 2002. The child receives a '250 voucher to start their account, which cannot be accessed until they turn 18, ensuring they start adult life with some money behind them.

Closed-ended
A collective investment vehicle such as a UK investment trust company, with a fixed capital structure. Variations in demand for the shares of the company are reflected in movements in their market prices and not by an increase or decrease in the number of shares in issue. Opposite of an open-ended fund.

Collective investment schemes
Funds which pool investors' money and invest on their behalf. This term refers to unit trusts and OEICs.

Compounding
The process by which your investment grows in value over time with reinvested interest or dividends.

Conventional investment trust
Conventional investment trusts issue only one class of ordinary share. Depending on the trust's objectives, investors are entitled to their share of both income in the form of dividends paid by the company and any capital growth.

Convertible unsecured loan stock
Unsecured debenture that entitles the holder to exchange the debenture for another security at some future date.

Convertibles
Fixed interest loans or securities which may be converted into shares in the investment trust at a specified date, usually at a specified price.

Corporate bonds
Fixed interest securities issued by public companies.

Corporation tax
The tax a company may have to pay on its profits for a year. Investment trust companies are exempt from corporation tax on their capital gains and also do not pay tax on any UK dividends. As they can also offset expenses against any taxable income, most investment trusts do not pay corporation tax and are therefore very tax efficient.

Creation price
For dual-priced unit trusts this is the highest possible price at which an investor can buy units from the manager under FSA regulations. The initial charge is not included. The creation price represents the cost of buying the fund's assets.

Credit ratings
Ratings provided by specialist credit agencies which assess the likelihood of companies being able to meet their financial obligations. Ratings range from AAA (the most secure) to D (the least secure); the greater the credit risk the lower the rating.

Credit Risk
Usually used when referring to investment in bonds, credit ratings agencies estimate the likelihood that the issuer of the bond will not be able to keep up your interest payments or repay your capital at the end of the holding period. 'Triple A' or 'investment grade rated' are considered to be the lowest credit risk while non-investment grade also known as junk bonds and are rated triple B-D are the highest credit risk.

Crest
The system introduced in July 1996 by the securities industry through which transactions in securities are 'settled' (ie concluded) by the payment of cash or by the delivery of securities against payment.

Cumulative
When referring to loan stock or shares, cumulative means that, if the payment due for one period is missed, those securities must be given priority when the next payment is made, and arrears of the missed amounts must be paid before any dividend can be paid on the other shares in the trust structure.

Currency risk
When the manager buys investments in currencies other than Sterling there is a risk that the value of those investments will change due to changes in currency exchange rates. Current yield See running yield.

Custodian
Usually a major banking group, the custodian is appointed by the fund's trustee or depositary to safeguard the fund's assets.

Dealing spread
The dealing spread ('spread' or 'bid'/'offer' spread) is the difference between the price at which you can buy (offer) and the price at which you can sell (bid). For example, Ben buys 1000 shares in an investment trust at 130p per share (the 'offer' price). He pays 1000 x 130p='1,300 in total (ignoring the cost of dealing). If the spread is 5p, he could immediately sell the shares at 125p each (the 'bid' price). In other words, he would make an immediate loss of 1000 x 5p='50. The shares must rise by at least 5p per share before he can make a profit on them.

Debenture stock
A type of loan capital with a fixed annual rate of interest and repayment value. Debenture stockholders take precedence over ordinary and preference shareholders in the vent of an investment trust company being wound up. Debenture stocks are one of the commonest traditional forms of long-term borrowing. Debenture stocks are usually secured on the company's assets and, therefore, have a prior claim to repayment over unsecured creditors.

Debenture Stock
A fixed interest security issued as loan capital. Debenture stocks are traditionally a common form of long-term borrowing. Debenture stocks are usually secured on the company's assets and therefore rank ahead of shareholders funds in the event of liquidation

Debt
The total value of all prior charges ranking before equity capital. When referred to in the context of investment trusts the debt referred to is that which is used for investment purposes.

Debt cover
This is the ratio of total assets to the trust's debt. Typically an indicator used by banks in setting covenants in respect of loans to investment trusts.

Default risk
The risk that a company may not be able to pay you back the money you have invested

Deposit Account
A bank or building society account which earns a steady rate of interest and in which your original capital is secure. The interest rates paid vary depending on the length of time you are prepared to lock your money away for.

Depositary
Responsible for overseeing the fund manager's activities in relation to an OEIC. Usually a large bank, the depositary must be independent of the fund manager where the fund is authorised by the Financial Services Authority. It acts in the interests of the investors, owning the investments in the fund on their behalf. It also ensures that the fund is invested according to its investment objectives and that the manager complies with the regulations. The unit trust equivalent is known as the trustee.

Derivatives
A general term for futures and options.

Discount
If the share price of an investment trust is lower than the net asset value (NAV) per share, the trust is said to be trading at a discount. The discount is shown as a percentage of the NAV. The opposite of a discount is a premium. It is more common for an investment trust to trade at a discount than a premium.

Discount broker
A service provided by an intermediary where no advice is taken. Also known as an 'execution only' service, the broker will buy a product on behalf of an investor after the investor has chosen which product they would like to purchase. Discount brokers usually waive or discount the initial charge, as no advice has been provided. This service is often available by post and rather than pay commission you are charged a one off transaction charge.

Distributions
Income paid out from a unit trust or OEIC in the form of interest or dividends.

Diversification
A term used to describe the spreading of risk by investing in a number of different companies and assets. Doing so will mean that you won't have all of your eggs in one basket.

Dividend
The income from a share investment. Some investment trust companies pay dividends on a quarterly or monthly basis. The majority pay dividends twice yearly.

Dividend yield
The annual dividend expressed as a percentage of the current market price. The yield on an investment trust share, or any other share, indicates the size of the income return on the share in relation to its current price (not what investors paid for it in the past). It is calculated by expressing the annual dividends as a percentage of the share price. A dividend yield can give you an indication of the potential level of income you would get from an investment trust share. However, future dividends may be higher or lower than indicated by the current dividend yield depending on the performance of the trust.

Dual pricing
Dual-priced funds have an offer price at which you buy, and a lower bid price, at which you sell. The difference between the two prices is known as the bid/offer spread. The buying price is normally higher than the selling price as this includes the initial charge to be paid to the fund manager.

Entitled Redemption Value
The predetermined entitlement attributable to the share at wind-up. This is not a guaranteed amount.

Equities
Shares in a company (see also stocks and shares).

Equity exposure
Usually expressed in percentage form. This illustrates the proportion of a fund which is invested in stocks and shares (equities).

Ethical funds
Also known as Socially Responsible Investments (SRIs). These funds aim to avoid investing in activities which may be harmful to society, such as tobacco production or child labour. Some funds also aim to actively invest in companies which promote ethical policies such as recycling.

Ex-dividend (xd)
For funds, the period between its accounting date and when it pays out its income. If you buy a unit trust in this period, you do not get the income, but if you sell, you do.

Exchange Traded Funds (ETFs)
ETFs are a new kind of collective investment fund competing with investment trusts and unit trusts for investors' money. In some ways they are a conventional tracker fund, pooling the cash of a large number of investors and investing it in a basket of shares in companies that make up an index (e.g. members of the FTSE A All-Share). Like unit trusts, ETFs are open ended, which means that new units can be issued in response to demand. The advantage of this is that they trade at a price which is close to the net asset value of the fund (i.e. the value of its investments).

Exempt funds
Refers to funds that are only open to institutional investors which are exempt from paying capital gains tax, such as pension funds and charities.

Exit charge
Also know as redemption charge. A charge taken by the managers of some funds when you sell units. In many cases, the charge will only be applied if you sell within, say, five years. Exit charges are usually applied instead of, rather than in addition to, an initial charge.

Expected income yield
An estimate of the income that you might earn in the coming year if you bought units at the current price.

Expenses charged to capital
Expenses incurred by the fund can either be taken out of the income received by the fund or from the fund's capital. Charging expenses to capital will increase the amount that can be paid out to investors as distributions but will reduce the capital value of the fund.

Fact find
A process undertaken by independent financial advisers (IFAs) to establish the financial position, investment goals and attitude to risk of their clients to ensure that suitable advice is given.

Fair value pricing
This is the manager's best estimate of the value of one or more securities at the valuation point of the fund, with the intention of producing a 'fairer' dealing price, where there is doubt over the validity of those prices.

Financial Ombudsman Service (FOS)
Customers with a complaint against a financial services firm can make a complaint to the FOS who will investigate on their behalf. If the company no longer exists or has become insolvent you should contact the Financial Services Compensation Scheme (FSCS).

Financial Services Authority (FSA)
The UK regulator for the financial services industry, which includes investment management companies, banks, building societies and insurers. The FSA has four statutory objectives; to maintain confidence in the UK financial system; to promote public understanding of the financial system; to secure the right degree of protection for consumers and to help reduce financial crime.

Fixed interest securities
Securities like debenture stocks, loan stock and convertibles which carry a fixed rate of interest called a coupon.

Fixed interest securities
Provide regular, fixed, interest payments and are issued by companies and Governments. They include gilts and bonds.

Forward pricing
This is the most common method of pricing authorised funds. Once the manager has received your instruction to buy or sell units, the price of those units will be determined at the next valuation point of the fund. Free Standing Additional Voluntary Contribution (FSAVC) schemes These permit people who are part of a company pension scheme to make additional contributions to a separate stand-alone scheme that can continue when you change employer.

FTSE 100 index
An index of the 100 of the largest UK companies trading on the London Stock Exchange. Its constituents are reviewed quarterly.

FTSE 250 Index
British index on the London Stock Exchange of the largest 250 companies by market capitalisation after those listed on the FTSE 100.

FTSE all-share index
A broadly based index covering hundreds of the largest UK industrial, commercial and financial companies, including some investment trusts. Commonly used as a benchmark against which performance of some investment trusts or sectors are measured.

FTSE investment companies index
An index covering eligible UK investment trust companies. Often used as a measure of how the investment trust sector as a whole has performed.

FTSE Small Cap Index
British index of the smallest companies by market capitalisation.

Fund manager
Manages the unit trust in accordance with the fund's objectives and decides which assets to hold in order to meet those objectives. In an OEIC the manager is referred to as the Authorised Corporate Director (ACD).

Fund of Funds
Fund of funds are designed to increase diversification by investing in other funds.

Fund supermarket
Companies which enable investors to buy, manage and sell their investments with different fund managers through a single account, usually online. Not to be confused with supermarkets such as Tesco which sell financial products?

Futures
Agreement to buy or sell a fixed amount of a particular asset at a fixed future date and a fixed price.

Gearing for Closed-Ended Funds
The term used to describe the process of borrowing money for investment purposes in the expectation that the returns on the investments purchased using the borrowings exceed the costs of those borrowings.

Gearing for Open-Ended Funds
The amount a fund can 'gear' is the amount it can borrow in order to invest. In unit trusts and OEICs borrowing is limited to 10% of the fund's value and is usually for the purpose of managing cash flow rather than to increase the fund's investment exposure.

Gearing ratio
In a simple example, if a company has 100 million of total assets and 13 million of borrowings, shareholders' funds are 87 million. If the total assets grow or fall by 10% to 110million or 90million, and the borrowings remain the same at 13 million, the shareholders' funds grow to 97 million or fall to 77 million. This is an increase or decrease in shareholders' funds of 11.5%, which in both cases is 15% more than the 10% increase or decrease in total assets. This means the shareholders' funds are 15% geared (and the gearing factor/ratio would be 115 in this instance.)

General (or Generalist Trust)
Trusts that invest across global markets and sectors, with a broadly spread portfolio and an investment objective to produce a balance of income and capital growth.

Gilts
Bonds issued by the UK Government. Also known as gilt edged securities. Along with bonds can be referred to as fixed interest securities.

Gross income
Dividends and interest paid out to you before income tax has been deducted.

Gross redemption yield
Usually used in bond investments. This yield seeks to indicate the total return you might receive from both income and capital growth (or loss) if you hold your investment over a ten-year period.

Guaranteed fund
This is where a fund manager promises to provide a specific minimum return, backed by a legally enforceable arrangement with a third party to guarantee that promise.

Half-yearly report
Also known as the 'interim report'. It will include details of the fund's investments and how it has performed and more general financial information relating to the fund (see also Annual report). Your fund manager will send it to you during the financial year for the fund that you hold.

Hedge funds
A fund, which uses an assortment of trading techniques and instruments to meet an objective of providing positive investment returns irrespective of the performance of stock markets.