Jargon Buster
Are you puzzled by investment language?
Our jargon buster gives clear and concise definitions and explanations of investment terminology.
To view the definitions please select the relevant letter below. Or alternatively search to find the definition and explanation you are looking for.
Absolute return vehicles/strategies
Types of investment strategies targeting a positive return in absolute terms rather than relative to an index or other benchmark
Accrual bond
See collateralised mortgage obligation
Accrued benefits
Pension benefits earned by an employee based on the terms of the pension plan
Accrued interest
The interest earned since the last coupon payment. When you buy a bond you pay the seller for the accrued interest as you will receive the full coupon when it is next paid
Active manager
An investment manager who seeks to outperform an investment benchmark through, amongst other things, asset allocation, market timing, duration selection or security (company or bond) selection
Active return
The return of a portfolio relative to its investment benchmark
Active risk
The standard deviation (risk) of active return. This is also sometimes called the tracking error
A-day (legislation)
Referring to the 6th of April 2006, the precise date that the simplification of the pension tax regime came into force
Additional voluntary contributions (AVCs)
These are pension contributions over and above normal scheme contributions that a member chooses to pay into an the occupational scheme to get extra benefits
Alpha
A measure of the return of a portfolio relative to an investment benchmark. Alpha adjusts for the level of risk being run in the portfolio compared with the benchmark (as measured by the portfolio"s beta against the benchmark)
Alternative assets
Alternative investments include real estate, hedge funds, private equity and commodities. They are bought in order to enhance expected return and diversify a portfolio. Alternative assets are usually unquoted and therefore less liquid than equities and bonds.
American depository receipts (ADRs)
Certificates issued by a US bank stating that a specific number of a non-US company"s shares have been deposited with it. These certificates are denominated in US$ and traded on US exchanges as if they were US securities. See also Global depository receipt
Annual allowance
The maximum annual amount members can pay into a pension scheme without incurring tax
Annual management charge (AMC)
The annual administration charge payable to the provider of an occupational pension scheme. The percentage amount being deducted from your fund value for investment and administration services
Annual percentage rate (APR)
The cost of debt that is paid by borrowers expressed as an annualised figure
Annualised return
The average return over a given period scaled up or down to an annual figure. For example, if a fund has produced a return of 33.1% over three years, on average the fund would have produced a return of 10% a year (1.10*1.10*1.10=1.331)
Annuity
The name given to an annual pension bought from an insurance company or other financial institution. A defined-contribution scheme builds up a fund that is normally used at retirement to buy an annuity.
Annuity rate
The rate at which a pension fund is converted into regular pension payments. For example, a £6,000 annuity from a pension fund of £100,000 has a 6% annuity rate.
Arbitrage
Profiting from differences between the prices of very similar assets
Arithmetic average
The result found by adding a group of values together and dividing by the number of values in the group. Also known as mean
Ask price
The price at which a dealer will sell a security to an investor. Also known as offer price
Asset allocation
A fund"s allocation to different asset classes
Asset class
The main types of investment available: bonds, equities, real estate, commodities etc
Asset-backed security (ABS)
Securities backed by the income stream of income producing financial assets
Asset-liability modelling
A technique that projects possible future states of a fund"s assets and liabilities under a range of investment policies inorder to assess the policies" suitability.
Assets
The holdings of a fund, which may include stocks, shares, fixed-interest securities or cash.
Attribution analysis
Decomposing the return achieved by a fund manager into its constituent parts (e.g. asset allocation and stock selection) to show where value was added
Authorised share capital
The nominal amount of share capital a company is authorised to issue. This does not provide any indication of the worth of the company.
Authorised unit trust
A unit trust that is subject to certain FSA regulations so that it can be marketed to the general public
Jargon Buster is intended to assist in the understanding of some of the many technical terms that frequently appear in the pensions world. The definitions are intended as a guide only.
Jargon Buster is provided by Blackrock for visitors to www.napf.co.uk