Woodford glossary

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Home > Investing > Terms Glossary

The world of finance doesn’t have to be as complicated as it is often portrayed. Our aim is to build a valuable resource for investors but we need your help. Let us know the terms or phrases that you struggle with or help us to define those that others may find difficult to understand, by submitting your own suggested terms and definitions below.

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Absolute return

The actual return of an asset over a certain time period without comparison to a benchmark.

Accumulation share

A share class in which income remains in the fund rather than being distributed to the shareholder.

Alpha

A widely used risk metric which measures the excess return delivered by a fund over its benchmark.

Annualised

A term used to describe the yearly return delivered by an investment, which includes the effect of compounding.

Backwardation

A term used when the price of a commodity futures contract is lower than that commodity's current price.

Balance sheet

In financial reporting, a summary of a company's assets and liabilities at a specific point of time.

Bears

Investors that are pessimistic on the outlook for a particular stock, industry, market or economy.

Beige Book

A report published by the United States Federal Reserve containing insights, assessments and views on current economic conditions.

Beta

A measure of how sensitive a fund or asset is to market movements.

Bond yield

The annual return an investor receives from a fixed interest security

Brownian motion

A theory borrowed from the natural world that aims to explain random price movements.

Bulls

Investors that are optimistic about a particular stock, industry, market or economy in general.

Buy-side

Any investing institution, such as a fund management company.

C-share

A class of shares which allows an investment trust to raise additional capital without adversely impacting the interests of existing shareholders.

Capital return

The return from an asset that is delivered purely through change in the price of that asset.

Closet indexation

The habit of constructing a portfolio that closely resembles the benchmark index against which its performance will be measured.

Contango

A term used when the price of a commodity futures contract is higher than that commodity's current price.

Contrarian investor

An investor that focuses on exploiting the market's crowd-following behaviour.

Crowdfunding

The funding of ventures or projects by raising money from a large number of people, usually online.

Currency basket

Not what you throw your money into on a toll road...

Defined benefit pension scheme

Also known as 'final salary', this is a form of pension where employers pay retired employees a fixed amount.

Defined contribution pension scheme

A common form of pension these days, where responsibility for saving lies with the employee.

Discount

In literal terms, a price reduction. In financial terms, the difference between an investment trust's share price and its net asset value.

Efficient market hypothesis

A fundamentally discredited notion that asset prices perfectly reflect all available information at all times.

Equalisation

A mechanism that ensures that income distributions from a fund can be the same for all shareholders, regardless of when the shares were purchased.

Ex-dividend

The date at which income received by a fund (or dividend from a stock) becomes due to be paid out to shareholders, with payment typically following several weeks later.

Fiat currency

A monetary system in which a currency value is not tied to a commodity.

Fintech

A movement of young, dynamic companies looking to disrupt and disintermediate the traditional financial services industries in a digital, user-friendly way.

Fiscal policy

A term that is used to explain how government tries to influence macroeconomic factors.

Fixed interest security

A financial asset that pays a specified, fixed rate of interest (coupon) and normally has a predetermined maturity date.

Forms 8.3 and 8.5

Disclosure forms required by the Takeover Panel to clarify material interests in the share register of UK-listed companies in a bid situation.

Goldilocks economy

Just as in the fairy tale, an economy that is not too 'hot' or too 'cold'.

Helicopter money

A theoretical, unconventional monetary policy tool which aims to put money directly into the hands of consumers.

Income share

A share class in which income is distributed to the shareholder.

Invisible hand

Another term to explain the market's hidden forces which balance supply and demand through fluctuations in price.

Market capitalisation

The total market value of a company's outstanding shares.

Mean reversion

The gravitational pull on an asset's valuation towards its historic average.

Momentum investing

A trading strategy that involves buying assets when they have risen in price or selling assets when the price has fallen.

Mr Market

A hypothetical investor that epitomises the market consensus and its susceptibility to the emotions of panic, euphoria and apathy.

Negative interest rate policy (NIRP)

An unconventional monetary policy tool used to fight deflation.

Over the counter (OTC)

A decentralised market, where trading is done directly between two parties, without the supervision of an official stock exchange.

Overweight

A term used to describe a fund's higher exposure to a stock or sector than its benchmark.

Price / earnings ratio (PE)

A crude valuation metric which measures a company's share price in the context of the earnings attributable to that share.

Pension deficit

The gap between a pension schemes assets and the estimate of its future liabilities...

Quantitative easing

Money printing hidden behind a very poor disguise...

Relative return

The return of an asset over a period of time compared to its benchmark.

Risk arbitrage

Risk arbitrage, or risk arb for short, is a trading strategy employed mainly by short-term market participants to exploit marginal pricing inefficiencies.

Sell-side

Part of the investment industry that provides research and execution services to institutional investors.

Short selling

The selling of a security that is not owned by the seller...

Total factor productivity

A measure which aims to capture the other, less tangible influences on economic growth, which works in tandem with more measurable inputs such as capital and labour.

Total return

The whole return delivered by an asset over a period of time, including capital return (delivered by price change) and income.

Underweight

A term used to describe a fund's lower exposure to a stock or sector than its benchmark.

Vix

CBOE Volatility Index or unofficially, the fear index.

Yield

The income return on an investment measured as a percentage of the cost of that investment.

Yield curve

A yield curve is a graphical illustration of the yields on fixed interest securities at differing maturities. Bonds can be issued with various different...

Zero interest rate policy (ZIRP)

Another unconventional monetary policy tool.

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