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Glossary
A

Term

Explanation

ABS

See Asset-backed security

Absolute (returns)

A measure of the gain or loss on an investment portfolio or security expressed as a percentage of invested capital. Absolute return differs from relative return because it looks at the return of a particular asset in isolation and does not measure it against a benchmark.

Absolute return strategy

Aim to achieve positive returns across all stock market conditions, regardless of whether prices are rising or falling. In managing such a strategy, investment managers employ a range of techniques including the short–selling of securities and the use of derivatives.

Accommodative (monetary policy)

A policy of increasing the money supply in an economy in order to lower interest rates so that they reach a level which stimulates borrowing and economic growth.

Accountability (company)

Companies are accountable to their owners (shareholders). In addition, companies that are providers of financial services in the UK are subject to authorisation and regulation by either the Financial Conduct Authority (FCA), Prudential Regulation Authority or both authorities.

Accrued interest (bonds)

Interest that has accumulated, and is recognised from an accounting perspective, since the last coupon payment of a bond.

Accumulation shares

Units or shares where the net income from dividend payments is re-invested rather than distributed to unitholders/shareholders.

Active investment management (funds)

Where a fund manager seeks to enhance returns through effective stock selection, asset allocation and currency selection decisions.

Added value (funds)

The additional return that is delivered by a fund manager’s skill, knowledge and expertise.

ADR

See American Depository Receipts

AGM

See Annual General Meeting

AI

See Accrued interest

AIM

Alternative Investment Market. Operated by the London Stock Exchange, the Alternative Investment Market (AIM) is focused on young and growing companies. Requirements for companies raising money and being listed on AIM are less onerous than those required for a full stock exchange listing.

Alpha

The excess return of a fund relative to the return on its benchmark adjusted for risk.

Alternative investments

Investments which do not fall into the traditional categories of bonds, cash and bank deposits, and equities. Examples include commodities, property, hedge funds and private equity.

AMC (funds)

See Annual Management Charge (funds)

American Depository Receipts

American Depository Receipts are a way for American investors to hold foreign stocks. They are issued certificates representing shares of non-US companies held on deposit and in trust. They are listed on US stock exchanges, or can be traded over the counter, and priced in dollars.

Amortisation

An accounting term which permits a company to reduce the value of an intangible asset over its expected life.

Annual General Meeting

Public companies are required by law to hold an Annual General Meeting which all shareholders are entitled to attend. The business of AGMs, at which all shareholders may vote, includes the approval of the company’s financial statements and the election/re-election of directors. AGMs also provide an opportunity for shareholders to question the directors on the company’s performance and other issues.

Annual Management Charge (funds)

The annual fee levied on fund holders to cover the costs of managing the fund. It is calculated as a percentage of the value of the fund.

Annualised

A term applying to the conversion of a rate given over a specified period of time to an annual basis, i.e. an investment producing an actual return of 15% over five years would have produced an annualised return of 2.8%.

ASEAN

The Association of South East Asian Nations. Established in 1967 with the objectives of improving economic co-operation between members. It comprises 10 countries of this rapidly growing region: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Ask price

The price at which a security or asset is offered for sale to a buyer.

Asset

Any owned item of value.

Asset allocation (funds)

The apportionment of an investment portfolio between different asset classes/geographical markets. The proportion in each asset class will be determined by a fund’s benchmark, its objectives and its risk profile.

Asset class

Broad groups of investments with similar characteristics. Examples include bonds, equities, cash and alternatives.

Asset price bubbles

The term 'bubble' refers to an episode where the price of a financial asset rises significantly, often in response to speculation, which results in the asset trading at a substantial premium to its intrinsic value. When the bubble bursts, the price of the financial asset falls sharply leaving investors with reduced wealth. This may impact discretionary spending and hinder economic growth. Central banks attempt to keep an eye on asset price appreciation and take measures to curb high levels of speculative activity which may make prices vulnerable to a sudden correction. The term 'bubble' was first used in 1720 in reference to the South Sea Bubble Crisis and more recently has been applied to Japan in the 1980s and even 'dot-com' companies in the late 1990s.

Asset-backed security

Often a bond, the value and cash flows of which are derived from a pool of specific assets, such as loans, mortgages and credit cards.

At the money (option)

An option is said to be ‘at the money’ if its exercise price equals the market price of the underlying asset.

Auction

The main method used by central banks or their agencies to issue government bonds. For UK gilts, the Debt Management Office is responsible for this.

Important information

Glossary terms are correct as at 11 July 2011. This glossary is provided for information purposes only and should not be used as a basis for making any investment decisions. Some of the glossary terms relate to subjects or investment strategies that might not be appropriate for some individuals. We recommend you seek professional advice before making any investment decisions.

Reproduction of this glossary, in whole or in part, is prohibited without the written permission of Invesco Perpetual.