A-D

The Investment Research Partnership

A-D

A B C D

ABI	Association of British Insurers - the trade body that represents the interests of the UK insurance industry.

Accumulation units	An investment within a unit trust where interest and dividends are rolled up within the unit price or automatically reinvested to increase the unit value. Income tax is still payable on the reinvested income.

Active Management	An investment approach employed to exploit pricing anomalies in those securities markets that are believed to be subject to mispricing by utilising fundamental and/or technical analysis to assist in the forecasting of future events and the timing of purchases and sales of securities. Also known as Market Timing.

Actuarial Consultant	Actuarial firms who devise institutional portfolio management clients on the choice of portfolio manager and fund methodology to be employed in the running of a portfolio.

Advisory management	A form of management agreement which requires the manager to advise on the composition of the portfolio, to keep it under review and recommend.

ADR	American Depository Receipt - Certificates issued by a US depository bank, representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. If the ADR's are "sponsored," the corporation provides financial information and other assistance to the bank and may subsidize the administration of the ADR "Unsponsored" ADRs do not receive such assistance. ADRs are subject to the same currency, political, and economic risks as the underlying foreign share. Arbitrage keeps the prices of ADRs and underlying foreign shares, adjusted for the SDR /ordinary ratio essentially equal. American depository shares (ADS) are a similar form of certification.

AER	*Annual Equivalent Rate* - The annualised compound rate of interest applied to a cash deposit. Also known as the Effective Rate.

AGM	Annual General Meeting - The annual meeting of directors and ordinary shareholders of a company. All companies are obliged to hold an AGM at which the shareholders receive the company's report and accounts and have the opportunity to vote on the appointment of the company's directors and auditors and the payment of a final dividend recommended by the directors.

AIM	*Alternative Investment Market* – replaced the UK 's Unlisted Securities Market and over-the-counter market in June 1995. Designed for smaller and younger companies which are likely to be of higher risk and have less liquid securities.

AITC	Association of Investment Trust Companies - the trade body that exists to further the interests of the UK investment trust industry.

Allotment letter	A temporary document of title sent to successful applicants for a company's share offer.

Alpha	The return from a security or a portfolio in excess of a risk adjusted benchmark return. Also known a Jensen's Alpha.

Amortisation	The depreciation charge applied in company accounts against capitalised intangible assets.

Annualised Sharpe Ratio	The Sharpe Ratio judges whether the relationship between a portfolio's risk and its return. The underlying assumption is that a fund manager could invest in a riskless asset, therefore the return of the risk free asset is deducted from the annualised average. This net return is then divided by the total risk. The higher the ratio the better the Fund. If you have a negative ratio this indicates that the Portfolio returned less than the risk free amount. The ratio effectively becomes meaningless at this point.

Annuity	An investment that provides a series pre specified periodic payments over a specific term or until the occurrence of a pre specified even, e.g. death.

APCIMS	*Association of Private Client Investment Managers and Stockbrokers* - the trade association that represents stockbrokers' interests.

APR	*Annual percentage rate* or true rate of interest in a loan, taking into account costs and charges associated with

Arbitrage	Trading in securities between markets in order to exploit, without risk, any price differentials which may occur.

Arithmetic Mean	A measure of central tendency established by summing the observed values in a data distribution and dividing the sum by the number of observations. The arithmetic mean takes account of every value in the distribution.

Articles of Association	The legal document which sets out the internal constitution of a company. Included within the articles will be details of shareholder voting rights and company borrowing powers.

ASIM	Association of Solicitor Investment Managers. ( UK )

Asset Allocation	The process of investing an international portfolio's assets geographically and between asset classes before deciding upon sector and stock selection.

AUTIF	*Association of Unit Trusts and Investment Funds* ( UK )

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Balance of Payments	A summary of all economic transactions between one country and the rest of the world typically conducted over a calender year.

Base Currency	The currency against which the value of the quoted currency is expressed. The base currency would be currency X for the X/Y exchange rate.

Base rate	The annual interest rate on which institutions calculate their lending rates – governed by the prevailing interest rate set by the Monetary Policy Committee.

Basis point	One hundredth of a percentage point or 0.01 per cent – often used with regard to expressing movements in interest rates or yields on securities.

Bear	An investor who is negative about the market, a stock or sector. He may sell shares (sometimes those he does not possess) in the hope that prices will fall and he can buy them back later.

Bear market	A falling market

Bearer Securities	Those whose ownership is evidenced by the mere possession of a certificate. Ownership can, therefore, pass from hand to hand without any formalities.

Bearer stocks/shares	Securities which are not registered with the registrar in the name of the owner. Thus the bearer is deemed the owner.

Beneficial owner	The real or underlying owner legally entitled to economic benefits of ownership. Often applied to owners whose stock is registered with nominees.

Beta	The covariance between the returns from a security and those of the market relative to the variance of returns from the market.

Blue chip	Term applied to leading companies, usually components of the FTSE 100, whose stock is considered reliable with regard to dividend income and capital value.

Bonus Issue	The free issue of new ordinary shares to a company's ordinary shareholders in proportion to their existing shareholdings through the conversion, or capitalisation, of the company's reserves. By proportionately reducing the market value of each existing share, a bonus issue makes the shares more marketable. Also known as *Capitalisation Issue* or *Scrip Issue*.

Bottom-up	A method of assessing an investment starting from company-specific data such as profitability, earnings per share, cash flow and margins. It discounts macro-economic and political influences. (See top-down).

Broker Dealer	A London Stock Exchange member firm that can act in a dual; capacity both as a broker acting on behalf of clients and as a dealer in securities on their own account.

Bull	An investor who is positive about the market, a sector or share.

Bull Market	A rising securities market. The duration of the market move is immaterial.

Business Cycle	The course an economy conventionally takes as economic growth fluctuates over time. Also known as the Economic Cycle.

Buy-back	A process by which a company purchases its own shares in the market for cancellation. This will tend to enhance earnings per share for the remaining shareholders and is sometimes seen as an efficient use of surplus cash which may exist on the balance sheet.

BVCA	British Venture Capital Association - the trade association that represents all principal sources or private and venture capital in the UK.

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Call options	An instrument which confers the right, but not the obligation, to buy stock, shares, and index or other negotiable items at an agreed price on or by a specified future date.

Cancellation price	The price at which a unit trust manager will deal for unit trust redemptions if the underlying units need to be liquidated (i.e. the assets sold and cash generated).

Capitalisation Issue	The free issue of new ordinary shares to a company's ordinary shareholders in proportion to their existing shareholdings through the conversion, or capitalisation, of the company;'s reserves. By proportionately reducing the market value of each existing share, a bonus issue makes the shares more marketable. Also known as Bonus Issue or Scrip Issue.

Cash alternative	The shareholders of a target company may be offered this instead of shares in the predatory company – loan notes are often available as an alternative to cash so that investors can roll over the capital gain and avoid or defer a tax change.

CAT	Cost Access and Terms - Criteria against which an investment product must be deemed satisfactory to be given a CAT standard.

CD	Certificate of Deposit - negotiable bearer securities issued by commercial banks in exchange for fixed term deposits.

Ceteris Paribus	Other things being equal. In economics, the ceteris paribus caveat is used when considering the impact of a change in one factor or variable on another variable, market or economy as a whole, holding other factors constant.

CGT	Capital Gains Tax - Payable once capital gains net of any losses (including realised losses brought forward from previous years) and an allowance for indexation to the Retail Price Index (RPI) and taper relief exceed the annual allowance.

Chartist	An investor who believes he can predict stock prices by examining historic prices and their movements over time. Chartism assumes all information is known by the market and attempts to exploit investors' psychology in relation to where a price has come from and therefore where it is most likely to go.

Circuit Breaker	Mechanism by which all computer trades are banned when a particular market index has fallen by a significant amount during a single trading day, typically 10 per cent. Created after the October 1987 crash which was exacerbated by automated computerized selling.

City Code	The non-statutory code administered by the Panel on Takeovers and Mergers (POTAM) that applies to the overwhelming majority of UK companies involved in merger or acquisition activity. The City Code ensures that a strict timetable is adhered to and that the target company's shareholders are treated fairly and equally. Also know as the Blue Book.

Clean Price	The quoted price of a Gilt. The clean price excludes accrued interest or interest to be deducted, as appropriate.

Closing Out	The process of terminating an open position in a derivatives contract by entering into an equal and opposite transaction to that originally undertaken.

Code of Best Practice	The code that embodies best corporate governance practice for all public limited companies (plcs) quoted on the London Stock Exchange. Also known as Combined Code.

Combinations	A strategy requiring the simultaneous purchase or sale of both a call and a put option o the same underlying asset, sometimes with difficult exercise prices but always with the same expiry dates. Combinations include straddles and strangles.

Combined Code	The code that embodies best corporate governance practice for all public limited companies (plcs) quoted on the London Stock Exchange. Also known as the Code of Best Practice.

Commercial Paper	Unsecured bearer securities issued at a discount to par by public limited companies (plcs) with a full listing on the London Stock Exchange. Commercial Paper does not pay coupons but is redeemed at par.

Commission	A charge (usually incorporating stock exchange commission and/or third party commission) that a broker or adviser may levy on the investor for a transaction, normally netted against the cost or proceeds of the transaction.

Competition Commission	The body to which a merger or takeover is refereed for investigation by the Secretary of State for Trade and Industry in order to establish whether the combined entity would work against the public interest or would prove to be anti-competitive.

Complement	A good is complement for another if a rise in the price of one results in a decrease in demand for the other. Complementary goods are typically purchased in conjunction with one another.

Contango	When the futures price stands at a premium to the price of the underlying asset.

Continuous Data	Where numbers in a data series can assume any value.

Contract note	A detailed statement showing the transaction, title of the stock, price, stamp duty (if applicable), commission etc.

Convertible Bonds	Bonds issued with the right to convert into either another issuer's bonds or, if issued by a company, the company's equity, both on pre specified terms.

Convertible Loan Stock	Bonds issued with a right to convert into the issuing company's equity on pre specified terms.

Convertible Preference Shares	Preference shares issued with a right to convert into the issuing company's equity on pre specified terms.

Corporate Governance	The mechanism that seeks to ensure that companies are run in the best long term interests of their shareholders. Also see Combined Code.

Correlation	The degree of movement between two variables determined through regression analysis and quantified by the correlation coefficient. Correlation does not prove that a cause-and-effect or, indeed, a steady relationship exists between two variables as correlations can arise from pure chance.

Coupon	The rate of interest on a fixed interest security.

Covariance	The correlation coefficient between two variables multiplied by their individual standard deviations.

Cover	The multiple (e.g. 1.8 x) by which a company has net profit available in order to pay a dividend (dividend cover) or its interest on borrowing (interest cover).

Crest	Real-time electronic share settlement system which allows investments in dematerialised form, that is without a certificate.

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Debenture	A bond issued by a company, usually with fixed coupon, and which is secured on the company's assets.

Depreciation	The charge applied in a company's accounts against its tangible fixed assets to reflect the usage of these assets over the accounting period.

Derivatives	Generic term for products of financial engineering, such as futures and options, which are based on underlying securities and/or markets and which can be used to speculate or to modify the risk inherent in an investment or portfolio.

Dilution	Term applied to the effect which a scrip, rights, warrants or options issue (and exercise) may have in terms of reducing the percentage of participation a share has in the interests of the company. Equally, as the term implies, dilution may be applied to the diminution of a variable (e.g. earnings per share) that occurs when a capital structuring event takes place.

Dirty Price	The price of a Gilt inclusive of accrued interest or exclusive of interest to be deducted, as appropriate.

Discount	In connection with investment trusts a discount indicates the market capitalisation is lower than the net asset value of the trust's underlying investments. The term also applies to newly issued stock when the market price is lower than the issue price.

Discount Rate	The rate at which interest used to establish the present value of a sum of money receivable in the future.

Discretionary agreement	Form of management agreement whereby the manager exercises full discretion (without referral to the client) over the ongoing management of the portfolio. A complete understanding of the client's circumstances, objectives and risk profile should exist before the discretionary agreement comes into force.

Dividend	The element of net profits which a company distributes to shareholders.

Dividend mandate	A form which instructs the company's registrar to pay dividends directly to a beneficiary's bank or building society account.

Dividend yield	Dividend per share divided by the current market price. This represents the income return to the investor as measured by dividend receipts.

Dow Jones index	The Dow Jones Industrial Average is a major US stock exchange index consisting of 30 industrial stocks. It is not weighted by the respective market capitalisation of its constituents.

DPB	Designated Professional Body - a professional body, such as the Law Society, designated by HM Treasury under the Financial Services and Markets Act to supervise and regulate its members who carry on exempt regulated activities.

DRIP	*Dividend Re-Investment Plan* – recently created to the scrip dividend. The principal difference is shares are bought in the market by the company using investors' dividend cash rather than the company issuing new shares in lieu of the due dividend. DRIPs are mini-share buy-backs whereas scrips are mini-rights issues.

Duration	The weighted average time, expressed in years, for the present value of a bond's cash flows to be received. Also known as Macaulay Duration.

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