Glossary of technical terms

Active ownership  Refers to the use of rights and position of ownership to influence the activities or behaviour of investee companies.

Active vs. passive – ‘Active funds’ are managed by managers who attempt to surpass an index over time, while ‘passive funds’ track an index.

Agency Mortgage-Backed Securities (MBS) – These are pools of securitised residential mortgage loans that are issued and guaranteed by US government agencies.

Alpha – A measure of an investment portfolio’s performance against a certain benchmark, usually a stock market index.

Annuity - A financial product that pays a guaranteed income stream in the future for a specified duration or the remainder of the investor's life out of invested funds. An annuity is usually used for retirement purposes.

Asset class – A group of financial instruments which have similar financial characteristics and behave similarly in the marketplace. Examples include fixed income, equity and multi-asset.

Asset-weighted  The percentage a holding comprises within an investment portfolio is determined by its value compared to other holdings within the same portfolio.

Average net assets  Represents the total value of all the securities in a portfolio, less any liabilities, averaged over a period of time.

Balance sheet – The balance sheet shows the financial status of an organisation at a particular instant in time – normally at the end of a reporting period such as a financial year, half-year or quarter.

Bank trust – A trust company within a bank, acting as an agent, fiduciary, or trustee on behalf of a third party.

Barbell strategy – An investment strategy that aims to find a balance between risk and reward by investing in high-risk and low-risk assets.

Base currency – The base currency of a mutual fund refers to the currency in which the fund's net asset value (NAV) is calculated.

Basis points (bps) – Otherwise known as "bips", a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.

Bear market  A financial market in which prices are falling, especially over a long period of time.

Black Monday ­– 19 October 1987, when stock markets around the world crashed, shedding huge value in a very short time.

Bloomberg code – Issued by Bloomberg, this is a code that uniquely identifies a specific securities issue.

Blue chip ­ Common stock of a nationally known company that has a long record of profit growth and dividend payment and a reputation for quality management, products and services.

Bond – A debt instrument, essentially a loan, issued by governments (a sovereign bond) or corporates (a corporate bond) and financed by investors. The bondholder receives interest payments, known as a coupon, and the principal of the bond when it is due.

  • Additional Tier 1 bond – A class of bond whose tier denotes the priority by which a creditor is paid should the issuer default.

  • Bund – A debt security issued by Germany's federal government to finance outgoing expenditures.

  • Corporate bond –  A type of debt security issued by a corporation in order to raise financing for a variety of reasons, such ongoing operations or mergers & acquisitions.

  • Emerging market debt (EMD) – Emerging market debt (EMD) is a term used to describe bonds issued by countries with developing economies as well as by corporations within those nations.

  • High yield – A high yield bond is one with a lower credit rating than an investment grade bond. High yield bonds typically offer a higher rate of interest because of a greater risk of default.

  • Inflation-linked bond – A bond indexed to an inflation indicator, such as the consumer price index (CPI) or the retail price index (RPI), in order to protect investors from a decline in the purchasing power of their money.

  • Investment grade bond – Assets rated BBB- or higher by rating agencies Moody’s, Standard & Poor’s or Fitch.

  • Municipal bond – Debt security issued by a state, municipality or county to finance its capital expenditures, including the construction of highways, bridges or schools.

  • Sovereign bond – A debt security issued by a national government.

  • Treasuries – A marketable government debt security with a fixed interest rate and a maturity between one and 30 years.

  • Treasury Inflation-Protected Securities – A type of bond issued by the US Treasury whose principal increases or decreases with inflation to protect the bondholder’s purchasing power. When the security matures, the bondholder is paid the original or the adjusted principal, whichever is greater.

Bottom-up approach – An investment approach that focuses on the analysis of individual securities before subsequently considering economic and market cycles.

Breakeven inflation rates – The difference between yields on nominal and inflation-linked bonds.

Breakeven ratio  A measure of profitability based on the revenue required to cover all expenses. A declining breakeven ratio means companies can achieve profitability at a faster rate, and vice versa.

Bull market – A financial market in which prices are increasing, especially over a long period of time.

Capital  Refers to financial assets or the financial value of assets.

Capital appreciation – Capital appreciation is a rise in the value of an asset based on a rise in market price. It occurs when the asset invested commands a higher price in the market than an investor originally paid for the asset. The capital appreciation portion of the investment includes all of the market value exceeding the original investment or cost basis.

Capital expenditure (CapEx) – The money a company spends to acquire, upgrade and maintain fixed assets such as equipment, property and buildings.

Capital Fixed Income Investors – A subsidiary of Capital Group.

Capital gains – The difference between an asset’s adjusted purchase price and selling price when the difference is positive.

Capital intensity – Measures, for a unit, the assets required to generate a certain level of income. To calculate the capital intensity ratio, the total assets of a business is divided by its total sales. 

Cash equivalents – Securities that are intended for short-term investing. Normally, they have solid credit quality and are highly liquid. They are considered equivalent to cash because they can be converted to actual cash quickly.

Charges – The charges a fund investor pays are used to pay the costs of running the fund, including the costs of marketing and distributing it. These charges reduce the potential growth of your investment. In addition to the Total Expense Ratio (TER), entry charges may apply according to provisions described in the Prospectus. Charges are likely to change over time and do not constitute a commitment from the management company.

Commodities – In general, commodities are raw materials to be processed for goods and products, they can be bought and sold in markets or by using derivatives such as options or futures.

Commodities supercycle – The rise, and fall, of many physical commodity prices (such as those of food stuffs, oil, metals, chemicals, fuels) that occurred during 2000–2014.

Common stocks – Units of ownership of a public corporation. Owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings.

Committee on Uniform Securities Identification Procedures (CUSIP)  A nine-digit number uniquely assigned to most financial instruments, including stocks of all registered US and Canadian companies, commercial paper and US government and municipal bonds.

Composite – A single group of discretionary portfolios that collectively represent a particular investment strategy or objective.

Compound annual growth rate (CAGR) – The average annual growth rate of an investment over a specified period of time longer than one year, including the effect of compounding. CAGR is typically used to measure and compare the past performance of investments or to project their expected future returns.

Compound interest –  The interest on your invested sum (the principal) plus interest.

Concentration risk  The potential for financial loss due to an overexposure to a single counterparty, sector or geographical region.

Contractual inflation escalation   A clause in a contract providing for increases or decreases in inflation if certain conditions change while the contract is in effect.

Convertibles/convertible holdings – Securities, usually bonds or preferred shares, that can be converted into common stock. Convertibles are most often associated with convertible bonds, which allow bondholders to convert their creditor position to that of an equity holder at an agreed-upon price.

Conviction/high-conviction investing – A style of active management in which portfolio managers construct portfolios based on an area of expertise, with little or no focus on market indices. High-conviction strategies are typically characterized by a relatively low number of holdings, held for longer periods, and managers sticking to their investment style through the market cycle.

Corporate governance  The system of rules, practices and processes by which a company is directed and controlled.

Correlation: negative and positive– In an investment context, negative correlation is the relationship between the excess returns of two funds in which one set of returns increases as the other increases and vice versa. Positive correlation is where both funds' returns increase or decrease at the same time.

Cost curve  A curve that shows the relationship between production output and the cost involved in producing the output.

Credit spreads – The difference between the yield (return) of two different debt instruments with the same maturity but different credit ratings.

Credit cycle  A cycle involving the access to credit by borrowers.

Credit rating – Typically ranging from AAA/Aaa (highest) to D (lowest), these are assigned by credit rating agencies such as Standard & Poor’s, Moody’s and/or Fitch, as an indication of an issuer’s creditworthiness.

Cumulative income  The sum of all income over a specified period.

Cumulative price return – The accumulated gain or loss of a stock (excluding dividends) over time, independent of the amount of time involved. 

Cyclicality  Refers to stocks, companies or industries which are cyclical and whose underlying business generally follows the economic cycle of expansion and recession.

Debt-to-equity ratio – An evaluation of a company's financial leverage by comparing its total liabilities to its shareholder equity. It reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.

Default rate – A bond is considered to be in default if the issuer misses a coupon interest payment or cannot repay the principal amount at maturity. The default rate measures the percentage of issuers in each fixed income asset class that failed to make either of these payments in the prior 12 months.

Deflation – A decrease in the prices of goods and services in an economy.

Defensive stock – A defensive stock is one in which a company’s earnings and revenues have the potential to hold up fairly well during a recession.

Defensive investing – A conservative method of portfolio allocation and management aimed at minimising the risk of losing the principal.

Demand elasticity – Refers to the degree to which demand changes when there is a change in another economic factor, such as price or income.

Derivatives – A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset (like a security) or set of assets (like an index). Common underlying instruments include bonds, commodities, currencies, interest rates, market indexes, and stocks.

Desynchronisation – Where markets no longer move in tandem.

Developed market  An economy with relatively high level of economic growth, standard of living, income or GDP per capita and infrastructure.

Digital economy  An economy which functions primarily by means of digital technology, especially electronic transactions made using the Internet.

Discretionary investment – A form of investment management in which buy and sell decisions are made by a portfolio manager.

Distribution policy – The disbursement of assets from a fund to investors. An accumulating policy means any income generated from a fund is automatically invested back into it, whereas a distributing policy totally or partially distributes the income to the investor. The frequency and amount distributed may vary depending on the fund.

Distribution yield – A measure of cash flow paid by a fund to reflect the distribution amount to be expected in the next 12 months, as a percentage of the net asset value (NAV) of the fund at a specific point of time.

Dispersion –The range of potential outcomes based on historical volatility or returns.

Dividend – A sum of money paid regularly by a company to its shareholders out of its profits (or reserves).

Dividend per share – The sum of declared dividends issued by a company for every ordinary share outstanding.

Dividends reinvested – Reinvesting dividend payments from stocks back into an investment portfolio rather than spending them.

Dividend yield – Dividend yield represents the ratio of dividends paid over the last 12 months to the net asset value as of the last month end. However, an annualised dividend yield is calculated on the basis of the most recent dividend payment when, in the last 12 months,

  • a share class has been launched for the first time or

  • a share class changed its dividend payment frequency or

  • the dividend payment frequency was modified as a result of a corporate event (for instance a special dividend distribution or a closure and relaunch of the share class).

Dovish – Dovish central bank policy generally involves lowering interest rates or keeping them low, because loose monetary policy increases the money supply.

Down market – The period of time after a market top during which a security’s price trends downwards.

Downside capture ratio – Measures the underperformance of an investment compared to an index during down markets.

Downside protection/ resilience – An investment position that seeks to reduce the frequency and/or magnitude of capital losses resulting from the decline of a stock or a fall in the overall market.

Downside risks  An estimation of a security's potential loss in value if the market causes a decline in that security's price. Depending on the measure used, downside risk explains a worst-case scenario for an investment and estimates how much the investor stands to lose.

Duration – A measure of the approximate sensitivity of a bond portfolio's value to interest rate changes.

Earnings per share – Calculated as a company's profit divided by the outstanding shares of its common stock. The resulting number serves as an indicator of a company's profitability. 

Effective duration – Effective duration provides a measure of interest-rate sensitivity. The longer duration is, the more sensitive to shifts in interest rates.

Emerging market – An emerging market economy is the economy of a developing nation that is becoming more engaged with global markets as it grows.

Endowment – An investment fund established for the purpose of supporting a charitable foundation or non-profit organisation.

Environmental, Social, and Governance (ESG) – A set of factors considered when investing in companies, that recommends taking environmental issues, social issues and corporate governance issues into account. ESG investing is used to screen investments based on corporate policies and to encourage companies to act responsibly.

Equity – Shares of ownership in a company.

Exchange-traded fund (ETF) – A type of fund that generally tracks the performance of an index and can be traded in a stock exchange. If actively managed, it can deviate from the benchmark index.

Exposure – In investment terms, exposure refers to the amount of capital invested in a particular asset, industry or sector within a portfolio, and is usually expressed as a percentage.  

Fallen angels  A bond that has been downgraded from investment grade to junk bond status.

Family office – A privately held company that manages the financial assets of one or a small number of ultra-high-net-worth families.

Federal (Fed) Funds Rate – The target rate reflects the upper bound of the Federal Open Markets Committee’s (FOMC) target range for overnight lending among US banks.

Feeder fund  A fund that pools investors' money which is then fed into a master fund.

Financial leverage – Refers to using borrowed capital in investments to increase a company's asset base and amplify potential returns.

Financial inclusion – Refers to efforts to make financial products and services accessible and affordable to all individuals and businesses.

Fixed income securities – A debt instrument issued by a government, corporate or other entity.

Foundation – A non-profit organisation or charitable trust that provides funding and support to other charitable organisations via grants.

Free cash flow (FCF) – The remaining money available to a company after it has paid its operating expenses and capital expenditures. The more free cash flow a company has, the more it can use to repay creditors, pay dividends, and for growth opportunities.

Free cash flow conversion  A ratio that indicates how much cash is available to a company after covering its operating and capital expenses, an indication of its capital intensity. Defined here as free cash flow divided by cash flow from operations.

Frontier market – Countries with investable stock markets that are less established than those in the emerging markets.

Fund – A financial vehicle made up of a pool of money collected from many investors to invest in securities such as stocks and bonds.

Fund income yield – Income yield is total income earned by the fund, net of withholding taxes and before management fees and expenses, divided by average net assets over the past 12 months.

Fund of funds (FOF) – An investment vehicle that invests in other funds, rather than investing directly in stocks, bonds or other securities. The FOF strategy aims to achieve broad diversification and minimal risk.

Fund selector – An investment professional responsible for evaluating/setting portfolio strategies for firms’ fund platforms.

Fundamental analysis / research – A method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors.

Fund distributor – A third party that sells or distributes mutual funds to investors on behalf of fund management companies. They generally have no direct relationship to the funds and may come with additional charges.

Futures – Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.

Global 60:40 balanced portfolio – A portfolio that invests across both global equity and global fixed income assets. In general, it maintains a 60% allocation to equities and a 40% allocation to fixed income.

Goodwill – When one company purchases another, the intangible (non-physical) assets associated with that transaction are considered goodwill.

Governance – The system of rules, practices and processes by which a company is directed and controlled.

Great Depression – The worst economic downturn in the history of the industrialised world to date, the Great Depression lasted from 1929 to 1939.

Green bonds – A type of bond that helps companies and governments raise funds for environmentally-friendly projects.

Gross domestic product (GDP) – measures the monetary value of final goods and services – that is, those that are bought by the final user – produced in a country in a given period of time (for example over a quarter or a year). Real GDP takes into account inflation.

Gross margin –The amount of money a company retains after incurring the direct costs from producing the goods and services it sells. It is calculated as net sales less the cost of goods sold.

Gross/net income yield –The return on an investment before/after the deduction of taxes and expenses, expressed in percentage terms. This differs from the yield of each share class.

Gross profit  Sales less cost of goods sold. It is the profit a company makes after deducting the costs from making and selling its products and services. It may also be referred to as sales profit or gross income.

Growth funds – Equity funds focused on long-term capital appreciation.

Growth and income funds – Equity funds focused on generating long-term returns from a combination of capital appreciation and dividend income.

Growth companies –Typically companies that aim to increase their revenue and earnings at a faster rate than the market average.

Growth investing – A strategy focused on increasing an investor's capital by investing in companies or sectors that are currently in a growth phase and expected to continue growing.

Hard commodities – Generally natural resources mined or extracted from the earth, including ore, petroleum products and metals.

Hard currency ­– Refers to money issued by a nation that is seen as politically and economically stable. Hard currencies are widely accepted around the world as a form of payment for goods and services and may be preferred over the domestic (local) currency.

Hawkish – Hawkish economic policy is generally when a central bank uses interest rate rises in an attempt to curb inflation.

Hedging – A method of reducing unnecessary or unintended risk, in this case particularly as it pertains to currency.

High yield – A high-yield bond is one with a lower credit rating than an investment grade bond. High-yield bonds typically offer a higher rate of interest because of a greater risk of default. 

Higher quality companies – Companies with outstanding quality characteristics, which may include low debt, more stable earnings, stronger balance sheets and higher margins to outperform over a long time horizon.

Impact investing – An investment strategy that aims to achieve a measurable and beneficial social or environmental impact alongside a financial return on investment.

Index / Indices – An index represents a particular market or segment of it, and is a tool used to describe the market and compare returns on specific investments.

Independent advisory – An investment bank that provides strategic and financial advice to clients primarily including corporations, financial sponsors, and governments.

Inflation – The rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market – in other words, too much money chasing too few goods.

Information ratio – A measure of risk-adjusted return and represents the value added of the portfolio manager (excess return) divided by the tracking error.

Investee company – A single business or group of businesses in which a fund, such as a venture capital firm or private equity firm, has directly invested.

Investment-grade bonds – These bonds are considered higher quality bonds. They have a credit rating of BBB/Baa and above.

Investment officer – A professional who makes decisions about investing money on behalf of their clients.

Investment professionals – May include portfolio managers, investment analysts, economists and traders.

Investment style bias – In investing, style refers to the investment approach or objective that an asset manager uses with the ultimate goal of generating returns.

Issuer – A legal entity that develops, registers and sells securities to finance its operations. Issuers may be corporations, investment trusts, or governments.

Intangible assets – Assets that do not have a physical shape or form. Other examples of intangible assets include brand and intellectual property.

International Securities Identification Number (ISIN) Code – A code that uniquely identifies a specific securities issue.

Investment style – The overarching approach a portfolio manager follows when assembling a portfolio of asset. Investment style can be divided into various categories and tends to be based on parameters such as growth vs. value orientation, risk preference and/or market cap.

Investment vehicle – An investment vehicle is any financial instrument or product into which an investor can invest and ideally grow their money. Examples include stocks, bonds, mutual funds.

Japanification  Refers to the economic problems that Japan has been facing since the 1990s, characterised by chronically anaemic economic growth and weak inflation.

Key man/person risk – When an investment management company becomes heavily reliant on a single person or a few key individuals (including ‘star managers’).

Key Investor Information Document (KIID) / Key Information Document (KID) – Document that provides key information about investment funds.

Laddering  Generally, laddering is used to describe different investing strategies that aim to produce steady cash flow by deliberately planning investments, creating an influx of liquidity at a predetermined time, and/or matching a desired risk profile.

Large-cap – A publicly traded company with a market value between US$10 billion and US$200 billion.

Leaders – Best-in-class companies in sustainable sectors with high ESG ratings.

Leveraged balance sheets – Leverage is the amount of debt a company has in its mix of debt and equity (its capital structure). A company with more debt than is average for its industry is considered highly leveraged.

Liquidity – Describes the degree to which an asset or security can be quickly converted into cash without a significant concession in price.

Local currency – A currency that can be spent in a particular geographical locality at participating organisations.

Long-duration stocks – Typically have low earnings in the near term and are expected to generate most of their cashflows in the distant future. They tend to be more sensitive to interest rate rises because the present value of these cashflows decrease when discount rate increases.

Macroeconomic analysis – The study of trends that pertain to the whole economy, rather than to the different elements (companies, industries, consumers, etc.) that make up the economy.

Management fee – The charges that are collected by the management company to compensate investment advisers for their investment advisory services, as well as, where applicable, distributors and other intermediaries, for services to investors or similar services in relation to investments made with their assistance. Additionally, entry charges may apply according to provisions described in the prospectus.

Market capitalisation/cap – Value of a company as determined by the market price of its outstanding common stocks.

Market cycles – Trends or patterns that may exist in a given market environment.

Maturity – The date when the principal of a fixed income security is due to be repaid.

Mean consensus earnings – The average of the combined projected earnings based on estimates from professional analysts that cover the stock.

Mid-cap – A publicly traded company with a market value between US$2 billion and US$10 billion.

MiFID II – European Union (EU) legislation to regulate financial markets in the bloc and better protect investors. Its aim is to standardize practices across the EU and restore confidence in the industry, especially after the 2008 financial crisis.

Moat – Refers to an economic moat, meaning a business’s ability to maintain advantages over its competitors in order to protect its long-term profits and market share from competing firms.

Monetary policy – A set of tools used by a central bank to manage the country’s money supply and promote economic growth. In an economic slowdown, a central bank may adopt an accommodative (expansionary) policy, also known as quantitative easing, to boost the economy by measures such as lowering interest rate and purchasing securities. When inflation is high, a central bank may adopt a contractionary policy, also known as quantitative tightening, by increasing interest rate to slow growth and decrease inflation.

Money Market – The market for trading short-term debt investments.

Mortgage-backed securities (MBS) – An investment similar to a bond that consists of a bundle of loans (usually home loans) bought from the banks that issued them.

Multi-asset income fund – Funds aiming to provide current and/or growing income by investing in a flexible mix of equities and fixed income securities.

Multiple – A variety of ratios used to value a stock, calculated by dividing the market or estimated value of an asset by a specific metric on the financial statements. It is used to quantify a company's health and find investment opportunities by comparing with other companies.

Multiplier effect – Where a change in a particular input has the impact of causing a greater change in output.

Natural capital – The world’s stocks of natural resources, which include geology, soil, air, water and all living things.

Nearshoring  Moving production and other outsourced operations closer to a company’s registered country or region

Net asset value (NAV) – Measures the value of a fund’s assets, minus its liabilities. NAV is typically calculated on a per-share basis.

Net dividends reinvested – Describes an index which reinvests dividends from its constituent corporate securities after the deduction of withholding taxes.

Net interest margin – Typically measure the amount of money that a bank is earning in interest on loans versus what it is paying in interest on deposits.

Net investment – The amount spent by a company or an economy on capital assets, or gross investment, less depreciation. Net investment helps give a sense of how much money a company is spending on capital items used for operations, such as property, plants, equipment, and software.

Net zero – Refers to achieving a balance between the amount of greenhouse gas emissions produced and those removed from the atmosphere in order to reduce global warming.

Norms-based screening – A process used in investing to remove from consideration certain types of companies, sectors or practices based on specific criteria, such as ethical or social reasons.

Nominal cash flow – Refers to the actual dollar amount of money that a company expects to take in and pay out, without any adjustment for inflation.

Open-ended investment company (OEIC) – A type of UK-based investment fund that is structured as a company in order to invest in stocks and other securities.

Open-ended funds  A type of investment fund that issues unlimited shares.

Operating currency – The operating currency of a mutual fund refers to the currency in which the fund’s net asset value (NAV) is calculated.

Operating profit margin – A measure of how much profit a company’s sales can make after variable costs of production.

Option – Financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell — depending on the type of contract they hold — the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.

Option-adjusted spread – The measurement of the spread of a fixed income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option.

Original equipment manufacturers – A company whose goods are used as components in the products of another company, which then sells the finished item to users.

Peripherals – Countries that are less developed than the semi-periphery and core countries.

Phillips Curve – A representation of the economic relationship between the rate of change in unemployment, which affects the rate of change in wages as a result of inflation.

Positive screening – An approach where companies are included in a portfolio according to defined criteria. 

Premium – In investing, a premium on shares or stock occurs when a stock or share is issued above its par value (the face value of a bond or the value of a stock certificate). The difference between the par value and the issuing value is considered the stock premium.

Price elasticity of demand – Measures the sensitivity of demand for a good relative to a change in its price. A good is elastic when a change in price leads to substantial change in demand. A good is inelastic when the demand remains constant or has little change when price changes.

Price-to-earnings (P/E/) – The ratio for valuing a company that measures its current share price relative to its earnings per share (EPS).

PRIIPs – Packaged retail investment and insurance-based products make up a broad category of financial assets provided to consumers in the European Union.

Primary market – The capital market where investors buy new securities directly from the issuer or an intermediary.

Principal – In investment terms, this is the original sum of money used to buy an asset.

Principal investment officer – A portfolio manager accountable for ensuring the overall portfolio is achieving its objective.

Private credit – Investments in private, non-publicly traded debt instruments.

Private equity fund – A fund that normally invests in private, non-publicly traded companies and businesses.

Profit margin – A profitability ratio that measures the degree to which a company makes money by calculating the percentage of sales that has turned into profits.

Protectionism – Refers to government policies that protect domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors. They can also be implemented for safety or quality concerns.


  • Absolute return  A measure of the gain or loss of an investment portfolio over a specified period, expressed as a percentage of invested capital.

  • Cumulative return – The aggregate amount an investment has gained or lost over time, independent of the period of time involved.

  • Curve-adjusted return (%) – Total returns adjusted for common factors such as currency, duration, yield curve and government carry.

  • Excess returns  Returns achieved above and beyond returns of a proxy, such as an index. Also called relative return.

  • Relative returns calculated arithmetically  A measure of the outperformance (or underperformance) of a portfolio relative to the associated benchmark calculated using simple maths.

  • Relative returns calculated geometrically – Also known as geometric excess / active return, it is a measure of the proportional outperformance (or underperformance) of a portfolio relative to the associated benchmark.

  • Rolling returns – Average annualised returns for a specified period (e.g. five years, 10 years) on any chosen frequency (e.g. daily, weekly, monthly) and till the last day of the chosen duration.

  • Total return – The overall actual rate of return of an investment over a given evaluation period.

  • Trailing return –The percentage return on an investment over a specific period, calculated by the change in net asset value assuming reinvestment of any distributions, divided by initial net asset value.

Real estate investment trust (REITs) – A company owning and typically operating real estate that generates income.

Real wage  Income after factoring in inflation.

Reflation  A return to inflation (an overall increase in prices), from a state of deflation (an overall decrease in prices).

Registered investment advisor – An individual financial advisor or a company that provides its clients with financial advice.

Reinvestment risk The possibility that cash flows received from an investment will earn less when reinvested in new or existing security.

Relative returns – A measure of the outperformance (or underperformance) of a portfolio relative to the associated benchmark.

Responsible consumption – Involves making well-reasoned decisions about the products we buy, by taking into account environmental impacts at all stages of the product life cycle.

Responsible investment – An investment approach that explicitly acknowledges the relevance to the investor of environmental, social and governance factors.

Research portfolio  Research analysts conduct in depth, proprietary research on companies, they then make recommendations to portfolio managers and are also allocated part of the fund assets to manage.

Return on invested capital (ROIC) – A ratio that measures how well a company uses its capital to generate profits.

Rising stars – Bonds rated as a junk bond but which could become investment grade because of improvements in the issuing company's credit quality. 

Risk – The degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks.

Risk assets – Any asset that carries a degree of risk. Risk asset generally refers to assets that have a significant degree of price volatility, such as equities, commodities, high-yield bonds, real estate, and currencies.

Risk markets – Generally refers to markets with the potential for significant price volatility, such as equities, high-yield bonds, commodities, options, derivatives, and currencies.

Risk-return – A concept in investment management that potential return rises with increased risk, and vice versa.

Rotation – Money movement from one type of investment to another as investors anticipate the movement of the economic cycle.

Scope 1 emissions – Scope 1 are those direct emissions that are owned or controlled by a company.

Securitised – Financial securities that are created by securitising individual loans (debt).

Security – A mutually interchangeable, negotiable financial instrument that holds some type of monetary value. It represents an ownership in a publicly-traded corporation — via stock; a creditor relationship with a governmental body or a corporation — via bond; or rights to ownership via an option.

Secondary market – The capital market where previously issued securities, such as stocks and bonds, are traded among investors.

Secular growth – Occurs when there is a long-lasting and essential shift in an industry or sector leading to substantial growth.

Secular tailwind – A secular tailwind refers to economic trends that unfold over long time horizons that help encourage market growth, in contrast to cyclical factors that limit growth.

Segregated accounts – Segregated bank accounts are accounts that hold the funds of a customer separated from the funds of a FX or brokerage company in the interests of the customer's security. They are designed to achieve specific client investment objectives in an effective and transparent manner.

Share class – Each Capital Group fund has different share classes, such as B and Z. Each share class will have different levels of minimum investment, fees and expenses, and returns will differ.

  • “Acc” are accumulating share classes.

  • “Inc” are dividend-distributing share classes (either net dividend, “d” or gross dividend “gd”).

  • “d” are dividend distributing share classes (net dividends).

  • “gd” are dividend-distributing classes (gross dividends).

  • “gdh” are dividend-distributing hedged classes (gross dividends).

  • “gdm” are dividend-distributing with a monthly frequency (gross dividends).

Sharpe ratio – A measure of risk-adjusted return that represents the excess return of an investment portfolio for holding a riskier asset instead of the risk-free asset.

SICAV – A Société d'investissement à Capital Variable, or SICAV, is a publicly-traded open-end investment fund structure offered in Europe. SICAV funds are similar to open-end mutual funds in the US. Shares in the fund are bought and sold based on the fund's current net asset value.

Small-cap – A publicly traded company with a market value between US$250 million and US$2 billion.

Social bond – Any type of bond instrument where the proceeds are to be exclusively used to finance or re-finance, in part or in full, a new and/or existing eligible social project.

Soft commodities – Generally grown, such as agricultural products. E.g., soybeans, cotton, wheat and coffee.

Sovereign/sovereign investors – Refers to investors that are either sovereign States themselves or are intrinsically linked to a sovereign State, the most common types of which are State-owned enterprises (SOEs) and sovereign wealth funds (SWFs).

Spot rates – The price quoted for immediate settlement on a commodity, a security or a currency. The spot rate, also called 'spot price', is based on the value of an asset at the moment of the quote.

Standard deviation – Standard deviation is calculated after fees and is a measure of how much the returns from an investment can vary from its average return.

Star manager – A portfolio manager running a portfolio by themselves as an individual.

Steady compounders  Companies with high return on invested capital, a high quality franchise and recurring revenues built on intangible assets, and which possess pricing power and low capital intensity.

Stock Exchange Daily Official List (SEDOL) – A seven-character code used to identify unit trusts, investment trusts, insurance-linked securities, and domestic and foreign stocks, trading on the London Stock Exchange and various smaller UK- based exchanges.

Stock lending – The act of loaning a stock, derivative or other security to an investor or firm.

Strategic bond strategy – A strategy of investing across the fixed income spectrum, from corporate bonds to high-yield bonds. With a strategic bond strategy, exposure to different bond types can be increased or decreased, depending on factors including the economic environment.  

Structural theme – In investing, structural themes occur as one-off shifts that change an existing economic paradigm. These are typically long-term structural changes driven by powerful forces such as disruptive technologies or changing demographics and consumer behaviour.

Succession planning – A strategy for passing each key roles within a company to someone else in a way that the company continues to operate after the incumbent leader is no longer in control. Succession planning helps ensure that businesses continue to run smoothly after the business’ more senior people move on.

Style – In investing, style refers to the investment approach or objective that an asset manager uses with the ultimate goal of generating returns.

Sustainable Development Goals (SDGs) – A collection of 17 interlinked objectives adopted by the United Nations in 2015 designed as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.

Sustainable Finance Disclosure Regulation (SFDR) – A European regulation that lays down harmonized rules for financial market participants on transparency with regard to the integration of sustainability risks and the provision of sustainability-related information for financial products.

Sustainable Finance Disclosure Regulation (SFDR) Article 6 funds – Covers funds that do not integrate the EU criteria for environmentally sustainable economic activities into the investment process and could include stocks currently ineligible for inclusion in ESG funds.

Sustainability bonds – Bonds where the proceeds will be exclusively applied to finance or refinance a combination of both green and social projects.

Sustainability Disclosure Requirements (SDR) – A proposed set of rules that will govern sustainability disclosure requirements for financial market participants in the U.K.

Swaps – A derivative contract traded primarily between businesses or financial institutions outside of exchanges, through which they exchange one financial instruments for another. It usually involves cash flows but the instrument can be almost anything. The swaps are customised to the needs of both parties, and retail investors do not generally engage in swaps.

Synthetic Risk Indicator (SRI) – A summary risk indicator of level of product risk compared to other products. It shows how likely it is the product will lose money because of movements in the markets or because the company will not able to pay you.

Synthetic Risk & Reward Indicator (SRRI) – SRRI is a component of the UCITS KIID and illustrates a fund’s risk and reward profile.

Taxonomy – A classification system that enables businesses to identify whether or not a given economic activity should be considered “environmentally sustainable”.

Tailwind – In finance, refers to a certain situation or condition that may lead to higher profits, revenue, or growth.

Terming out  Terming out debt means refinancing short-term debt into long-term debt, which may make sense when interest rates are very low.

The Capital Advantage  Since 1931, our firm, Capital Group, has been singularly focused on delivering superior, consistent results for long-term investors using high-conviction portfolios, rigorous research and individual accountability.

The Capital SystemTM – Our distinctive investment approach, harnesses high conviction investing from multiple investment professionals working independently alongside each other with the overall aim of producing smoother returns that align with our investors’ long-term objectives.

The New Geography of InvestingSM   An investment approach which focuses on where a company derives its revenues rather than just where it is based.

Thematic investing – A form of investment that aims to identify macro-level trends, such as clean energy or technology, and the underlying investments that stand to benefit from those trends materialising.

Top-down approach – An investment approach that involves looking at the overall picture of the economy and then breaking down the various components into finer details.

Total expense ratio (TER) – A measure of the total costs associated with running the fund, including marketing and distribution costs.

Tracking error – A measure of how closely a portfolio follows its reference index by measuring the volatility of the difference in returns between the portfolio and the index.

Transitioners – Companies looking to transition their business models to a sustainable future.

Treasury Bill (T-bill) – A type of debt issued by the US Treasury.

Turnover – Turnover is calculated over the last 12 months as the lesser of monthly purchases and sales divided by the average net assets.

UCITS – Undertakings for Collective Investment in Transferable Securities (UCITS) is a regulatory framework that allows for the sale of cross-Europe mutual funds.

UN Global Compact – Conceived by the United Nations, a call to companies to align standards and operations with universal principles on human rights, labour, environment and anti-corruption.

Unconstrained strategy – An investment strategy that does not require a fund or portfolio manager to adhere to a specific benchmark.

United Nations Sustainable Development Goals (UN SDGs) – A collection of 17 interlinked objectives adopted by the United Nations in 2015 designed as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.

  • Aligned companies –  In relation to Capital Group’s sustainable funds, these are companies whose core business is currently majority-aligned to the United Nations Sustainable Development Goals.

  • Transitioning companies –  In relation to Capital Group’s sustainable funds, these are companies that are transitioning their business to higher positive alignment to the United Nations Sustainable Development Goals over the long term, with material near- to medium-term change expected.

Up market – The period of time after a market bottom during which a security’s price trends upwards.

Upside  Refers to the potential for an investment to increase in value, as measured in terms of money or percentage.

Upside capture ratio – Measures the outperformance of an investment compared to an index during up markets.

Valuation – A quantitative process that determines the estimated worth of an asset or a company. There are different methods and techniques for arriving at a valuation.

Value investing – An investment strategy that involves picking stocks that appear to be trade at a significant discount to their intrinsic value.

Value stock – A stock that appears to trade at a lower price compared to the worth of its fundamentals (such as cashflows, dividends, earnings, or sales), making it attractive to value investors as they anticipate its price to rise and eventually reflect the true potential of the company.

Volatility – A statistical measure of the pace, frequency and magnitude of a security’s price movement over a period of time, expressed in standard deviation.

Weights – The portion of a portfolio that is invested in a stock, bond, industry, sector or issuer at any point of time, expressed in percentage. In index terms, it is the percentage of the index’s total market value allocated to the same categories.

Wirehouse broker/dealer – Typically refers to a full-service brokerage firm that assists individuals with financial planning decisions and services, such as investment advice, portfolio management and brokerage services.

Yield –The income returned on an investment, such as the interest or dividends received from holding an asset. The yield is usually expressed as an annual percentage rate based on the investment’s current market cost.

Yield curve – A line showing bond yields (interest rates) of equal credit quality but differing maturity dates.

Yield curve steepening – Occurs with long-term interest rates rising more than short-term rates, or short-term rates falling more than long-term rates.

Yield-to-maturity – The rate of return for a bond assuming it is held to maturity.

Yield-to-worst – The lowest possible yield that can be received on a bond that fully operates within the terms of its contract without defaulting.