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Secondary Offering

A secondary offering occurs when a public company sells shares to investors at any time other than for the first time (see IPO)

Security

Another word for stock, bond or company

Sharpe Ratio

A ratio to measure risk-adjusted performance. The higher a portfolio’s Sharpe ratio, the better its risk-adjusted performance has been. The Sharpe ratio is calculated by subtracting the risk-free rate of return (usually based on a 10-year government bond), from the rate of return for a fund and dividing the result by the standard deviation (volatility) of the portfolio returns. The Sharpe ratio helps to tell us whether a fund’s returns are due to smart investment decisions or a result of excess risk.

Short Selling

Short sellers employ this tactic when they believe a security's price will decline. The seller borrows the security from another investor and then sells it in the open market. To close the position the short seller buys the security back in the open market at a later date before returning it to the original lender. They make money if the security has fallen in value and lose money if it has become more expensive.

Spread

This is applicable to dual priced funds and is the difference between the price at which investors buy units (the offer price) and the price at which they can be sold (the bid price). The spread includes any initial charge on the fund as well as the costs of trading in underlying securities.

Standard Deviation

Measures the volatility of a fund’s returns. Funds with high standard deviation exhibit relatively more volatility than those with low standard deviation.

Strategic Bond funds

Strategic bonds funds can invest into any category of fixed interest bond e.g. high yield, corporate bonds, gilts etc. Strategic bond funds are therefore flexible and many utilise derivatives to protect against falling bond prices (often seen when interest rates rise).

Top-down

A management style whereby the manager takes into account the greater market and wider economic picture to enable them to allocate assets to sectors and regions, before selecting stocks.

Total Expense Ratio (TER)

The total annual cost of managing a fund, which is charged to an investor. The cost includes the annual management charge (AMC) and other fees such as legal costs, trading fees and operational expenses. In order to arrive at the TER, the total costs of the fund are divided by the fund’s total assets producing a percentage amount which represents the TER. Unlike the OCF, the TER does include transaction costs and performance fees.

Total Return

The investment return consisting of both the capital appreciation and reinvested income.

Tracking Error

The expected and actual maximum deviation of a fund’s returns from those of a relevant index or benchmark.

Tracker fund

See index fund.

Turnover

A measure of trading activity within a fund, indicating how active a manager has been in buying and selling the stocks held within the portfolio. Neither high nor low turnover is necessarily good or bad and the number will generally just reflect the individual manager’s investment style. For example, 100% turnover indicates that on average each stock is held for one year.

UCITS

Undertakings for Collective Investments in Transferable Securities (UCITS) are investment funds that have been established in accordance with European Law. A fund authorised in one EU Member State can be freely marketed in any other Member State.

UCITS are subject to rules as to what they can invest in, how much they can borrow and how much of the fund can be exposed to any one counterparty. Underweight

This term refers to when the holding of either an individual company, industrial sector or country in a fund is lower than that of its relevant benchmark index.

Unit Trust

A trust which allows investors to pool their assets together and invest in a broad number of securities. Unit trusts are dual priced and have both a buy (offer) and sell (bid) price as opposed to OEICs.

Value Stocks

These stocks often have low P/E ratios and above-average dividend yields. They typically have slower earnings growth and low price to book ratios. Value investing is essentially buying stocks which are cheap.

Volatility

How fast, and by how much, the price of a security, sector or market changes over a period of time. A price that often moves significantly will be considered to have a high level of volatility.

Yield Curve

The yield curve is a graph which plots interest rates for similar bonds which have different contract dates and mature on different dates. Typically bonds which mature sooner will have lower yields because investors' money is tied up for a shorter amount of time. However, this is not always the case and yields can vary for a variety of reasons.

A-F Absolute Return to Funds

G-L Gilt to Liquidity

M-R Market Capitalisation to R Squared