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.

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Safe harbour

Investment strategy which minimises future uncertainty

Safe haven

See safe harbour

Satellite portfolio

See core portfolio

Scheme administrator

The person/company responsible for the day-to-day running of a pension scheme and maintaining member records

Scrip dividend

Payment of dividends in the form of additional shares rather than cash

Scrip issue

See bonus issue

Secondary market

The purchase and sale of securities which have previously been issued in the primary market

Section 32-a

Refers to the possibility of buying out protected rights via an insurance policy in the event of a wind-up of a defined contribution scheme.

Sector

Stock markets are divided into sectors, which comprise of companies from the same industries e.g. telecommunications sector, oil sector, media sector etc

Secured bond

A bond for which the issuer has set aside assets as collateral to ensure principal repayment and encourage timely interest payments

Securities

Assets tradable in standardised units on secondary markets, particularly equities and bonds

Securitisation

The creation of securities from non-tradable assets.

Segregated fund

Where the assets of a particular fund are managed independently of those of other funds under the fund manager"s control

Self-invested personal pension (SIPP)

A personal pension plan that gives greater freedom to the individual taking out the plan in terms of investment choice. Employers may offer group or corporate SIPPs

Settlement

The payment or collection of proceeds after trading a security. Settlement usually takes place some time after the deal and price are agreed

Share

A stake in a company which confers ownership rights on the holder. Shares are also known as equities

Share buy-back

Share buy-backs can be a tax-efficient alternative to pay out dividends. When a company buys some of its own shares in the market to reduce its issued share capital, it changes the proportion of debt to equity that it holds on its balance sheet

Share capital

The funding for a company that is raised through the issue of shares

Sharpe ratio

A measure of risk-adjusted return: the average additional return per unit of risk. Specifically, it is the ratio of the average performance relative to the risk-free asset (usually cash) to the volatility of return relative to the risk-free asset.

Short

An investor is "short" when the exposure to a given asset is less than the level considered neutral. If the neutral exposure is zero, the investor"s exposure is negative. Investors go short on a given asset with a view to buying it back at a lower price at a later date

Short bond/Short dated bond

A bond with a term to redemption of less than five years

Short extension investing

A relative return investment approach that provides full exposure to the market by taking both short and long positions. For example, a fund manager can invest 130% of the fund"s value in long positions and 30% in short positions resulting in 100% market exposure but with the potential for more alpha, given the extended opportunity set, than a typical long-only portfolio. The actual percentages may vary but the principal remains the same

Short-selling

Adopting a negative exposure to an asset by agreeing to sell it when it is not currently owned by the investor

Small-cap

Used to describe collectively those companies that have a small market capitalisation

Soft commission

An arrangement whereby a fund manager directs commissions to a broker which are then used to purchase goods and services e.g. research from a third party for the benefit of the fund manager. There are detailed FSA rules on the types of goods and services that may be softed

Sovereign debt

Bonds issued by a central government

Specialist (mandate, portfolio)

A specialist investment mandate or portfolio is usually one involving a single asset class, region or investment style (as opposed to "balanced")

Speculative grade

A credit rating below investment grade

Sponsor covenant

The ability and willingness of the sponsor of a pension scheme to meet the pension promises it has made to its employees

Spot price

The price of an asset when payment of the purchase price and delivery of the asset are essentially immediate (in contrast to the forward price)

Spread

The difference in yield between two different bonds. It is typically used to describe the extra yield offered by corporate bonds over gilts

Spread duration

A measure of the percentage change in a bond"s price for a 100 basis point change in its option adjusted spread. Often used to quantify the sensitivity of a portfolio to changes in spreads. The spread duration of a portfolio is the market weighted average of the spread duration of all of its securities

Stakeholder pension

The latest form of personal pension plan that has to meet certain standards set by the government including low charges and flexible contribution arrangements. Every employer with more than five employees who does not already sponsor a defined benefit or defined contribution scheme has to nominate a stakeholder pension provider and ensure access to the scheme for all qualifying employees

Stamp Duty and Reserve Tax (SDRT)

Stamp duty depends upon there being a document which can be stamped. For this reason SDRT was introduced in the UK in 1986 to cater for paperless transactions in shares. It is the tax paid on the transfer in beneficial ownership of certain types of asset, for example, units in UK unit trusts which invest in UK equities or property

Standard deviation

A measure of risk. The typical spread of outcomes, particularly of investment returns

State Second Pension (formerly SERPS)

From 6 April 2002, the State Second Pension (S2P) replaced the State Earnings Related Pension Scheme (SERPS). This is a more generous additional state pension, for people on low and moderate incomes (particularly those earning less than about £12,500 a year) and for certain carers and people with a long-term illness or disability

Statutory money purchase illustration (SMPI)

A projection of what your defined contribution pension account might provide, expressed in today"s money. See also Reporting

Stock market

A place for dealing in stocks and shares (equities) such as the London Stock Exchange

Stocks

Equities (shares) and (in the UK) bonds (loan stocks)

Strategic asset allocation

The mix of investment regarded as appropriate for an investor over the long run given that investor"s circumstances. This often becomes the investment benchmark

Strike price

See exercise price

Strip

Strips (separately traded registered interest and principal securities) are zero-coupon bonds created from the individual cash flows of a coupon-paying bond

Style

See investment style

Swap

An agreement between investors to exchange future cash flows. Payments can be based on a variety of factors including interest rates, currencies or equity returns.

Systematic risk/Market risk

The risk attributable to market or macroeconomic factors which cannot be diversified away by stock selection, for example the impact of war on a domestic economy. See also non-systematic risk

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