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.

A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z

Large cap stock

A stock with a market capitalisation that is among the largest within a market e.g. the capitalisation of one of the top 100 companies in the UK as represented by the FTSE 100 index

Leverage

  1. When an investor has more than a 100% exposure to a market, or part of a market, typically resulting from the use of debt or derivatives (futures and options).
  2. Leverage; The US term for gearing.

Liabilities

An investor"s liabilities are the obligations that must be met, e.g. future pension payments for a pension fund, or claims on insurance policies for an insurer

Liability-driven investing

Liability-driven investing (LDI) is an investment philosophy which aims to help defined benefit pension schemes establish a risk framework from which they can measure investment risk and set investment strategy

LIBID

London Inter-Bank Bid Rate, the rate at which major London banks offer to take funds on deposit from other banks

LIBOR

London Inter-bank Offer Rate. The rate at which major London banks offer to lend funds to one another

Lifestyle

A structured approach to investment designed to take account of investment risk over a working life and to remove the need for members to make investment choices

Lifetime allowance

The maximum amount a member can accumulate during his or her lifetime without incurring a tax charge.

LIFFE

The London International Financial Futures and Options Exchange Market for trading in derivatives

Limited Price Index (LPI)

A capped version of the retail inflation index used by many pension schemes to calculate their pension increases

Liquidity

The extent to which an asset can be bought and sold quickly and cheaply. Liquidity can be measured by the daily trading volume in a security

Liquidity risk premium (LRP)

In order to overcome investors" desire for liquidity, less liquid assets must offer a higher return ("premium") to compensate for reduced flexibility

Listing

The FSA has taken responsibility for the listing of companies to the "official list". Inclusion in this list represents an endorsement from the FSA that the company has met minimum standards. It remains the responsibility of the London Stock Exchange (LSE) to admit a company"s securities to trading on the exchange. Being "listed on the LSE" is therefore not the same as being "officially listed."

Loan stock

Another name for a bond normally used in connection with those issued by non-government bodies such as companies

Lognormal distribution

A variable is lognormally distributed if the logarithm of the variable has a normal distribution.

Long

An investor is "long" when the exposure to a given asset is greater than the level considered neutral. This is usually with a view to selling it at a higher price at a later date

Long/short fund

A hedge fund comprising a mixture of long and short positions in the same asset class or market

Longevity

The fact that people increasingly live longer. While a good thing, it unfortunately also means increased pension liabilities. The potential for further increases in life expectancy present a non-quantifiable risk for pension schemes as the pension is paid until death

Long-term

  1. In the Eurobond market, refers to initial maturities longer than seven years.
  2. Under standard accounting practice, refers to long-term debt with a remaining maturity greater than one year.

Lump sum

The percentage of accumulated pension benefits a member can take as a tax-free lump sum upon retirement.

Life company fund

A pooled fund that is operated by a life company. Such funds are similar to unit trusts except that investors own a life assurance policy rather than units.

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