Glossary of Terms

Absolute returnsreturns an asset achieves over a certain period of time.


Beta – Measures the sensitivity of the fund to the movements of its benchmark.

Bond - a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Bond ratings - bond ratings, here using Standard & Poor’s grades, are expressed as letters ranging from 'AAA', which is the highest grade, to 'C', which is the lowest grade.

Bottom-up approach – an investment approach that focuses on the analysis of individual stocks rather than the significance of economic and market cycles. In bottom-up investing, therefore, the investor focuses his or her attention on a specific company rather than on the industry in which that company operates or on the economy as a whole.

Bull market - a market in which share prices are rising, encouraging buying.

Capital - wealth in the form of money or assets.

Cash flow - the amount of cash generated and used by a company in a given period. Cash flow can be used as an indication of a company's financial strength.

China ‘A’ shares - are shares of China’s renminbi currency that are purchased and traded on the Shanghai and Shenzhen stock exchanges.

Composite Index - a grouping of indices put together by the fund manager in order to reflect the performance of a fund that does not follow a standardised benchmark.

Commodity – a basic good used in commerce that is interchangeable with other commodities of the same type. Traditional examples of commodities include grains, gold, beef, oil and natural gas.

Corporate bond - a bond issued by a corporation to raise money effectively in order to expand its business.

Correlation – a statistical measure of how two financial securities move in relation to each other.

Cost of capital - the rate of return that capital could be expected to earn in an alternative investment of equivalent risk.

Credit - a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Credit spreads - a credit spread is the difference in yield between two bonds of similar maturity but different credit quality. For example, if the 10-year Treasury note is trading at a yield of 6% and a 10-year corporate bond is trading at a yield of 8%, the corporate bond is said to offer a 200-basis-point (i.e. 2%) spread over the Treasury.

Credit quality breakdown - Nationally Recognized Statistical Rating Organisations (NRSROs) assess the likelihood of bond issuers defaulting on a bond's coupon and principal payments. The weighted average credit quality by Western Asset Management assigns each security the higher rating from three NRSROs (Standard & Poor's, Moody's Investor Services and Fitch Ratings, Ltd.). The weighted average credit quality by Brandywine Global assigns each security the middle rating from three NRSROs (Standard & Poor's, Moody's Investor Services and Fitch Ratings, Ltd.). If only one NRSRO assigns a rating, that rating will be used. Securities that are not rated by all three NRSROs are reflected as such. The lower the overall credit rating, the riskier the portfolio. The credit rating is expressed as a regular letter rating (from high to low quality): AAA, AA, A, BBB, BB, ...D.

Currency markets - markets in which participants from around the world are able to buy, sell, exchange and speculate on different currencies.

Distribution Yield -   Distribution Yield reflects the amounts that may be expected to be distributed over the next 12 months as a percentage of the Net Asset Value of the class as at the reported date. It is based on a snapshot of the portfolio on that day. It does not include any subscription charges and investors may be subject to tax on distributions

Dividend – a distribution of a portion of a company's earnings to a class of its shareholders.

Debt market – bond market

Deflation – a reduction of the general level of prices in an economy.

Denominated - expressed in a specified monetary unit.

Developed market - in investing, a developed market is a country that is most developed in terms of its economy and capital markets.

Duration - the duration of a financial asset that consists of fixed cash flows. For a bond, this is the weighted average of the times until those fixed cash flows are received.

Economic indicators - statistics about economic activity.

Effective duration - Average Duration equals the weighted average maturity of all the cash flows in the portfolio and gives an indication of the sensitivity of a portfolio's bond prices to a change in interest rates. The higher the duration, the more sensitive the portfolio is to interest rate changes. Effective Duration is a calculation for bonds with embedded options (Not every portfolio will purchase bonds with embedded options). It takes into account the expected change in cash flows caused by the option, as interest rates change. If a portfolio does not hold bonds with embedded options, then the Effective Duration will be equal to the Average Duration.

Emerging markets - in investment terms, countries whose financial markets are less developed and where investor protection and market infrastructure is often weaker than in developed markets such as the UK.

European Central Bank - the central bank responsible for the monetary system of the European Union (EU) and the euro currency.

Equity - ownership interest in a corporation in the form of common stock or preferred stock.

Federal funds rate - the interest rate at which a depository institution lends funds maintained at the US Federal Reserve (see below) to another depository institution overnight.

Futures - financial contracts obligating the buyer to purchase an asset (or the seller to sell an asset) at a predetermined future date and price.

Geopolitical - relating to politics, especially international relations, as influenced by geographical factors.

Gilt – a fixed-interest loan security issued by the UK government.

Growth stocks - stocks that tend to increase in capital value rather than yield high income.

High yield bonds - high-paying bonds with lower credit ratings than investment grade corporate bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.

Highly leveraged business – is a company with a high level of debt.

IMA Sector - The Investment Association (IA) sector within the Morningstar UK Registered Investment Fund class is a category that seeks to provide the optimum balance of like for like IA listed UK registered investments for the publication in media and web portals.

Inflation – a sustained increase in the general price level of goods and services in an economy over a period of time.

Information ratio - The ratio of annualised expected residual return to residual risk.

Interest rates - rates charged or paid for the use of money.

Investment grade - a credit rating that means a government or corporate bond has a relatively low risk of default.

Investor (or market) sentiment - the general prevailing attitude of investors with regard to anticipated price developments in a particular market.

Large caps - a term used by the investment community to refer to companies with a market capitalisation value of more than $10 billion.

Long position - a long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up.

Macro-driven – affected by macroeconomics (the branch of economics concerned with large-scale or general economic factors, such as interest rates and national productivity).

Market capitalisation – or ‘market cap’ is calculated by taking a firm's current share price and multiplying that figure by the total number of shares outstanding.

Market dislocation - financial market dislocations are circumstances in which financial markets, operating under stressful conditions, cease to price assets correctly.

Maturity - refers to a finite time period at the end of which the financial instrument (i.e. a bond) will cease to exist and the principal is repaid with interest.

Mortgage-backed security - a type of asset-backed security that is secured by a mortgage or collection of mortgages.

Non-inflationary - not likely to cause economic inflation.

Overweight exposure – is an allocation to a country, region or sector greater than that of the index against which the Fund is benchmarked.

Risk premium - the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, or the expected return on a less risky asset, in order to induce an individual to hold the risky asset rather than the risk-free asset.

Short position – is the sale of a borrowed security, commodity or currency, with the expectation that the asset will fall in value.

Small caps - refers to a company with a market capitalisation near the low end of the publicly traded spectrum. The boundaries that separate these classifications are not clearly defined and can vary according to the source.

Standard deviation - Measures the risk or volatility of an investment’s return over a particular time period; the greater the number, the greater the risk.

Sovereign bonds - are bonds issued by governments.

Spread sectors – non-governmental fixed income investments with higher yields at greater risk than governmental investments.

Tracking error - Dispersal of differences between the returns obtained by the Fund and the benchmark variation.

Top-down approach – refers to an investment approach that involves looking at the "big picture" in the economy and financial world and then breaking those components down into finer details.

Underweight exposure – is an allocation to a country, region or sector less than that of the index against which the Fund is benchmarked.

US Federal Reserve - the central bank of the United States, commonly referred to as the ‘Fed’.

Yield - the amount in cash (in percentage terms) that returns to the owners of a security, in the form of interest or dividends received.

Yield curve – the curve that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates.