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

Historic pricing
Where the price at which you buy or sell your units/shares is calculated at the last valuation point ie the fund manager uses the price set before he received your instructions.

ICVC
Investment Company with Variable Capital. Another term used to describe an OEIC. This term is used rarely but you may come across it in formal documents relating to an OEIC.

Income
The return on your investment that arises from dividends and interest earned by the fund.

Income shares
Income shares are a class of shares in a split capital investment trust. There are several types of income shares, which vary in their entitlements to income and offer various capital entitlements on wind-up.

Income tax
A tax payable to the Inland Revenue on any income you receive whether it is wages or income from investments and savings. Different rates of income tax apply; the one you pay depends on how much money you have coming in. For the 2004-05 tax year you are able to earn up to '4,745 before you have to pay any income tax.

Independent Financial Adviser (IFA)
An authorised and qualified professional who can advise on all financial services and products available and tailor them to your needs.

Index number
An index number is a statistic indicating the relative change occurring in the price or value of a commodity, share price or in a general economic variable eg. retail price increases, with reference to a previous base period conventionally given the number 100.

Index tracking funds
Index tracking funds aim to mirror the progress of a stock market index, e.g. the FTSE 100, by buying and selling shares in the same proportions as represented on the index. These are also sometimes called tracker funds or index funds.

Index-indices
A grouping of shares or fixed interest securities on the stock market which are often similar in size or represent similar industries. For example, the FTSE 100 index represents the largest 100 UK companies by market capitalisation.

Individual Savings Account (ISA)
This is a tax efficient means of saving that replaced PEPs and TESSAs in April 1999 for an initial 10 year period. See tax wrapper for more information.

Inflation
A general rise in the level of prices on the high street. This is measured by the retail price index.

Inflation risk
The risk to your savings caused by rising inflation. If inflation rises but interest on your savings doesn't keep up it can reduce the spending power of your money. A '1 coin will always be worth '1, but what you can buy with that coin will reduce with increased inflation.

Initial charge
A charge that is paid to the fund manager when you invest to cover their expenses, such as commission, advertising, administration and dealing costs.

Institutional investor
Institutions which invest, such as company pension schemes, as opposed to private individuals.

Instrument of Incorporation
This document forms the legal constitution for an OEIC fund and dictates much of how the fund will operate. The unit trust equivalent is known as the Trust Deed.

Interest
An amount, in percentage form, which a bank or building society will credit to you if you save with it in a deposit/savings account. The amount paid to you will be a percentage of whatever capital you have in your account. Gilts and bonds also pay income in the form of interest.

Interest distributions
Income paid out by unit trusts and OEICs that invest predominantly in gilts and bonds.

Intermediary
When buying a financial product you may not want to buy from the fund management company directly but go to a third party who may be able to offer you advice or a discount. These third parties are known as intermediaries and include banks, building societies and independent financial advisers.

Investment funds
A general term for unit trusts and OEICs.

Investment grade bonds
These bonds have a low risk of the company that issued the bonds being unable to repay them. The most secure forms are known as 'triple A' bonds. See credit ratings.

Investment objectives
All investment trusts must issue a clear statement of their investment objectives in their prospectus when they initially float. Thereafter, the board and the managers they employ must seek to meet this stated objective, unless it is subsequently amended by the trust's shareholders.

Investment trust company
A closed-ended fund, listed on the London Stock Exchange, which invests primarily in a diversified portfolio of the shares and securities of other companies.

Key Features Document
This document must be offered to an investor before or at the point of purchase. It summarises key information about the fund and is less detailed than the prospectus. It provides additional information to the prospectus such as information on risk and an illustration of the effects of charges both to the investor and the fund

Life Insurance Products
Products which guarantee that a sum of money will be paid out to you after a set term or upon death.

Limited redemption funds
Funds which restrict when you can cash in your investment, usually by only having set redemption dates.

Liquidation
The process of terminating a company by realising its assets, paying off creditors and holders of loan capital and distributing the remaining assets among shareholders, according to the order of priority.

Loan stock
A type of security issued by companies, also known as loan capital. This normally pays holders a fixed rate of interest and is repayable on or by a given date. See debenture stock.

Management charge
The charge levied by an external investment manager for the management of a trust or fund. It is usually charged annually, and may consist of a fixed fee and/or a performance related fee.

Manager
See fund manager.

Manager's report
See Annual report and Half-yearly report.

Market capitalisation
The stock market value of a company as determined by multiplying the number of shares in issue by the price of the shares.

Market makers
Those who trade in the market as principals, and create a market in a specific stock by quoting prices at which they will buy or sell on demand.

Market price
There are two prices quoted by stockbrokers: the higher or 'offer' price at which they will sell you shares (i.e. the investor's purchase price) and the lower or 'bid' price at which they will buy your shares (i.e. the investor's selling price). The difference between the two is known as the dealing or 'bid-offer spread'. See dealing spread.

Market risk
Investing in the stock market means that you can benefit from its growth potential. However, there is also a risk (market risk) that you could lose your money should the stock market in which you have invested fall in value.

Money market funds
These invest in cash investments, such as bank deposits. Often referred to as 'cash funds', they offer higher returns than a building society account but still have the same level of security.

Multi-tied adviser
A type of financial adviser who can only sell you products from a limited number of financial institutions rather than an independent financial adviser who can choose from all products on the market.

Multimanager funds
Multimanager funds are designed to increase diversification by a Manager of Managers outsourcing a pool of money for investment to appointed managers.

NAV capital performance
The theoretical capital return on shareholders' funds per share, including the assumed '100 original investment at the beginning of the period specified, reflecting the change in the net asset value (NAV). A simple measure of NAV at the end of the period compared with NAV at the beginning of the period.

NAV Total Return
This measures the performance of shareholders' funds per share and, thus, assesses the management of the company. It is a theoretical total return on shareholders' funds per share, reflecting the change in NAV assuming that net dividends paid to shareholders were reinvested in the net assets.

NAV total return performance
The theoretical total return on shareholders' funds per share, including the assumed '100 original investment at the beginning of the period specified, reflecting the change in net asset value (NAV) assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums.

Net asset value (NAV)
NAV, also referred to as shareholders funds, is simply the assets available to shareholders after prior ranking charges have been deducted from total assets. Prior charges can be valued at par value or fair value (also known as market value). The NAV with debt at par is used to calculate the NAV performance data.

Net income
Dividends and interest paid out to you after income tax has been deducted.

Net Yield
The income return on an investment after tax has been deducted.

New issue
The offer to the public, via a prospectus, of shares or loan capital in a company.

Nominee Accounts
When buying shares in an investment trust, you may hold the shares in your chosen trust in your own name, in which case you may be issued with share certificates; or they are held for you by the broker or manager on a 'nominee basis'. Nominee accounts can be a far easier way to hold shares as they avoid some of the paperwork associated with more traditional ways of buying shares. You may, however, lose some of the advantages of holding shares in your own name, such as being sent the report and accounts directly (you may wish to clarify these details with the provider/management group). If you buy shares via a wrapper product, the chances are your shares will be held in a nominee account.

Nominee Company
A company formed by a bank or other organisation for the purpose of holding shares on behalf of the beneficial owner. Nominee company employees carry out all the paperwork and other tasks associated with the documentation of shareholding and arrange for necessary transfers when a share is purchased or sold.

Non-investment grade bonds
These bonds have a high risk of the company that issued the bonds being unable to repay them. They are lower rated bonds on the share index, with a poor credit rating often as low as D. They are sometimes referred to as 'junk bonds'.

Offer price
The price at which you will deal when you buy your investment trust shares which will be higher than the 'mid-market' and 'bid' prices. See dealing spread.

Offshore fund
An investment scheme in which the fund is legally based outside the home country of the person investing in it. A fund might be established offshore for tax reasons or to avoid legal or regulatory restrictions.

Open-ended fund
A fund whose capital, and funds under management, increase or decrease in response to demand from buyers and sellers. The fund can issue new units/shares and redeem them. Unit trusts and open-ended investment companies (OEICs) are open-ended funds. Opposite of a closed-ended fund.

Options
Provide the opportunity (a 'right' rather than an obligation) for the buyer to purchase or sell a certain number of shares, at a future date and a known price.

Ordinary income shares
Split capital investment trust shares that aim to offer a level of income and prospects for capital growth. They are also sometimes known as highly geared ordinary shares or income and residual capital shares. They have no predetermined capital value but are entitled to all surplus assets after payment of prior charges. Depending on the structure of the trust in which the ordinary income share is issued, their entitlement to income may vary. See structural gearing.

Ordinary shares
The main type of equity capital issued by conventional investment trusts. Investors are therefore entitled to their share of both income in the form of dividends paid by the company and any capital growth.

Passive managed fund
Passive managed funds aim to mirror the progress of a stock market index, e.g. the FTSE 100, by buying and selling shares in the same proportions as represented on the index. These are also sometimes called tracker funds or index (tracker) funds.

Personal equity plans (PEPs)
A tax free wrapper product, subsequently replaced by ISAs, although existing PEPs continue to benefit from the same tax advantages.

Personal Pension Plan (PPP)
A savings scheme introduced by the government in 1985 to enable the self employed, and employees working for companies not operating a group pension scheme, to build up a pension fund for retirement.

Portfolio
Refers to investment holdings. It can either refer to the holdings within a particular fund or the range of investments held by an individual investor.

Portfolio yield
The portfolio yield represents the expected revenue, over the next twelve months from the appropriate month-end, as a percentage of the total assets at the appropriate month end. The revenue includes all expected income as calculated over the next twelve months from investments, cash deposits and other current assets with no deductions for expenses, interest, costs and tax.

Pound-cost averaging
An investment strategy by which the investor invests fixed sums over time, without specific regard to the share price at the time of purchase. The idea is that, by setting aside a fixed amount, rather than focusing on share price, you end up buying more shares when the price is low and fewer when the price is high. Can be a useful way to invest in the stock market if you are concerned about short-term volatility, as issues of timing are not as critical.

Preference shares
These are similar to bonds in that they usually pay a fixed rate of income. However, they pay it as a dividend rather than interest and are subject to the issuing company making sufficient profits.

Premium
If the share price of an investment trust is higher then the net asset value (NAV) per share, the trust is said to be trading at a premium. The premium is shown as a percentage of the NAV. The opposite of a premium is a discount.

Price
See mid-market price.

Prior charges
In simple terms, a prior charge should be seen as an amount which must be paid before your claim on the income or assets of the trust. This may include debt and/or the existence of prior ranking classes of shares.

Prospectus
A document required by law to be published on the occasion of an issue of shares or fixed interest securities to the public. A prospectus gives details of the company and the issue, as well as highlighting important risk factors.

Protected funds
Funds other than money market (cash) funds which aim to provide a return of a minimum amount of capital back to the investor, with the potential for some growth. Unlike guaranteed funds, they do not back their promise with a guarantee.

Provider
A financial company, in the case of unit trusts and OEICs a fund management company, which provides financial products to members of the public.

Quoted Investments
Investments that have an official listing on one of the world's recognised stock markets, with bid and offer prices quoted. Also known as 'listed investments'.

Redemption charge
See Exit charge.

Redemption date
Usually associated with gilts or bonds, the redemption date is the date set in advance when the gilt or bond will be repaid by the issuing government or company and you will receive your capital back.

Redemption value
The amount at which a prior charge or preference share is due to be repaid on the expiry of the loan period or on liquidation.

Redemption yield
See Gross redemption yield.

Regulator
See Financial Services Authority.

Reinvestment of dividends
1) For the purposes of total value performance statistics, it is assumed that any dividends received on an investment trust company share are reinvested back into the shares of the investment trust. 2) The process of reinvesting dividends by buying additional shares in the investment trust. A useful tool for shareholders who have no immediate need for this income. Many management groups now offer saving schemes where dividends can be reinvested. Repurchase The sale of units back to the fund manager to realise/cash in the investment. It is also referred to as redemption, although not to be confused with the redemption of a gilt or bond.

Retail investor
Term referring to members of the general investing public.

Return
The amount of income, capital growth or both that is generated by your investment.

Risk profile
This relates to how much risk you are prepared to take with your money. Generally the more risk you take, the higher the potential gain but the more likely it is that you could lose some or all of your capital. Your risk profile may depend on your financial circumstances, as some people are able to take more risk than others. If you are unsure of your risk profile you should contact an independent financial adviser for assistance before making an investment.

Risk rating
See credit rating.

Running yield
Also known as income yield. The amount of income generated by a bond or gilt fund at the current time.

Savings and investment schemes
A facility to enable purchases of investment trust company shares to be made easily and cheaply by the investment of regular (usually monthly) sums of money or by occasional lump sum contributions.

Sectors
Unit trusts and OEICs are divided into a variety of categories, known as sectors, to keep together funds of a similar type so that investors can compare funds with similar objectives and investment strategies. Categories include 'Money market' funds, 'European' funds, 'North American' funds etc.

Securities
Another name for documented investments such as stocks, shares and bonds which are designed to meet different investor needs. Some are based on a selection of shares listed others on the whole market.

Self managed investment trusts
An investment trust whose assets are managed by its own team of managers or by the directors of the company, rather than by hiring the services of an external management company.

Share Exchange
Some investment trust fund managers offer a share exchange service, whereby a parcel of shares can be converted directly into investment trust shares.

Share price capital performance
The theoretical capital return to the investor, including the original '100 invested at the beginning of the period specified, on a mid-market to mid-market basis, reflecting the change in share price over the period. A simple measure of price at the end of the period compared with price at the beginning of the period. Transaction costs are not taken into account.

Shareholders' funds
See net asset value (NAV).

Shares
The name given to a part of a company owned by an investor ' the investor buys shares in the company. Is also used to describe the OEIC equivalent of a unit.

Short selling-shorting of short
A short seller looks for companies whose shares could fall in value. Short sellers borrow stock in a company from a third party for a set period of time, at an agreed fee. The short seller sells the borrowed stock with the intention of buying the stock back at a later date, at a lower price. The stock is then returned to the lender, with the profit being the difference between the two prices less the agreed fee.

Single pricing
OEICs and some unit trusts have a single price at which investors both buy and sell. The initial charge is shown separately and is charged in addition to the unit/share price.

Split capital investment trusts
Split capital investment trusts (splits) are companies with a portfolio of investments just like conventional trusts, but which issue two or more different types of share class. These share classes have specific rights and entitlements to participate in the income and/or capital returns of the portfolio. At least one component share of a split is likely to have a limited life with a fixed wind-up date.

Spread
The difference between the bid price and the offer price of a share.

Stakeholder pension
Launched in 2001 and unlike a normal personal or occupational pension, the Stakeholder is also available to people who are not currently working including children. You can contribute up to '3,600 per year regardless of your age or earnings. You can invest as little as '20 and charges must be no more than 1% per year.

Stamp duty
A tax payable on the purchase of shares, property and businesses. All shares purchases incur 0.5% stamp duty. All other assets are charged at different rates, dependant on their value.

Stock exchange indices
Stock exchange indices are calculations made on an index number basis to indicate the movements in the general level of prices of securities listed on stock exchanges. There are many different indices

Structural gearing
Split capital investment trusts (splits) may be financially geared but they will also be geared as a result of their capital structure. Splits provide gearing to their share classes through their capital structure called structural gearing. This type of gearing is due to the predetermined entitlement and order of priority of the shares within the structure. The returns to each class of share are governed by the effect of the entitlements of the other share classes. The number of share classes and the proportionate entitlement of each determine the level of gearing involved.

Tax wrapper
An extra layer which surrounds an investment product, sheltering it from paying certain taxes. Such wrappers include pensions, ISAs, PEPs and TESSAs.

TESSA
Tax-exempt special savings accounts (TESSAs) were a type of cash account set up by the UK Government in 1991. Interest earned on savings in a TESSA were exempt from paying income tax providing you held the account for at least five years. TESSAs were closed to new business in 1999 and were replaced by cash ISAs.

Tied Agent
A type of financial adviser who can only sell you products from one financial institution, such as an adviser in a High Street bank who only sells that bank's products.

TOISA
'TESSA only ISA'. An Individual Savings Account which accepts transfers of the capital proceeds of mature TESSAs without using any of the annual ISA limit. See TESSA.

Total assets
For an investment trust, this figure would give an indication of the total value of all the company's investments before deducting any borrowings used for gearing/investment purposes.

Total Expense Ratio (TER)
A Total Expense Ratio (TER) represents the drag on performance caused by all annual operating costs (including administration, trustee and audit fees), not just the basic annual management charge.