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Here is a simple reference guide to some of the technical terms that you may come across as you explore your investment options.


Absolute return funds

Funds managed to increase in value over a certain period of time, regardless of market conditions.

Absolute return strategy

An investment approach that aims to increase a fund’s value over a certain period of time, regardless of market conditions.

Active funds

An active fund has a manager at the helm (and usually a team of analysts and researchers) who will select the assets he or she believes will increase in value. Actively-managed funds have the capacity to outperform their peers and the market as a whole. They are usually slightly more expensive than passive funds because investors must pay for the manager’s expertise.

Active risk

Some funds have a benchmark by which they can be measured. If the fund manager intentionally deviates from the performance of the benchmark to achieve higher returns then it is known as active risk.

Active share

Active share is the percentage of a fund’s holdings that differs from its benchmark. For example, an active share of 60% indicates that 60% of the fund differs from the benchmark.

Active management

There are two main types of investment management: active and passive. An active fund manager will use judgement, research, and analysis in order to select investments for the fund.


Alpha is a measure of performance and is the result of active management. It can be positive or negative. A positive alpha indicates a fund has performed better than its benchmark.


A type of non-traditional investment that includes commodities, infrastructure, private equity, and venture capital.

Annualised return

For a period greater than one year, this measures how much an investment has grown on average each year.

Annual Management Charge (AMC)

The fee paid for having your investment managed – usually a percentage of assets under management (AUM).


A type of insurance providing a regular income in exchange for payment (via a lump sum or instalments).

Asset class

Investments can be divided into five main groups called asset classes: cash, bonds, property, shares and alternatives.

Asset allocation

How an investment is split across asset classes. For example, a fund may hold a combination of shares, bonds and cash.

Assets under management (AUM)

The total value of investments held within a portfolio.


Balanced portfolio

A portfolio combining shares and bonds to even out risk and maximise return.

Balance sheet

Accounting statement showing a company’s financial position.

Bank of England

The UK’s central bank, which sets interest rates, issues banknotes and acts as a regulator of the UK’s financial system.

Bank of England base rate

The interest rate at which the Bank of England lends to institutions.

Basis point

A common term for interest rates and percentages in finance. One basis point equals 0.01%.

Below investment grade bonds

Also known as high yield bonds. These are issued by companies considered to be riskier and therefore generally pay a higher level of interest.


A standard, (usually an index or a market average) that an investment fund’s performance can be measured against. Many funds are managed with reference to a stated benchmark.


Measures the average extent to which a fund moves relative to the broader market. The beta of a market is 1, so a fund with a beta of more than 1 is considered more unpredictable. A fund with a beta of less than 1 is considered less unpredictable.

Bid-offer spread

The difference between the buying and selling prices of an investment in a dual priced fund.


Bonds provide a way for governments and companies (issuers) to raise money. For an upfront payment from investors, a bond issuer will make annual interest payments and repay the initial investment amount on a specified date. Also known as fixed income or fixed interest investments.

Bottom line

Another term for profit or loss (this figure is shown on the bottom line of a company’s P&L statement).

Bottom-up investing

When a manager prioritises a company’s financial history, management and potential over general market or sector trends when making investment decisions.



The total assets of a person or company, minus any money they owe or financial obligations they have.

Capital growth

When the current value of an investment is greater than the initial amount invested.

Cash and cash equivalents

Short-term investments that are highly accessible, including deposits, money market instruments and short-term government bonds.

Cash flow statement

A financial statement showing the movements of cash in and out of a business over a given period.

Closed-ended funds

A company that invests in other companies or assets. There are a set number of shares in the fund, and this number does not change regardless of the number of investors.

Collective investment scheme

A fund combining the assets of various individuals and organisations to create a large, diverse portfolio.


Physical materials such as oil, agricultural products and metals.

Compound interest

Interest calculated on an initial loan, and on the accumulated interest of previous periods of the loan. It is the interest on the interest.

Contract for differences (CFD)

A type of derivative which enables investors to trade on the price movements of an underlying investment. If the value of the money invested increases over the given period, then the seller will pay a percentage to the buyer. But if the value of the capital decreases, then the buyer must pay the seller.

Consumer Price Index (CPI)

A measure of UK inflation that reviews the change in the cost of a basket of consumer goods and services. It includes the costs associated with transportation, food and medical care.


Trading against the market. For example, buying a share that most others are selling, and selling a share that most others are buying.

Corporate Bond

Bonds issued by companies to raise money. The company agrees to pay interest and repay the initial amount invested at a specified point in the future.


A measure of how different investments’ values move in relation to each other. Highly correlated investments move up and down in value together, while investments with low (or negative) correlation tend to perform in different ways.


The regular interest payment paid on a bond until it matures.

Credit rating

An independent assessment of a bond’s quality and the creditworthiness of the issuer. They run from the highest rating AAA through to the lowest D. The higher the rating, the lower the risk of default – i.e. an investor not getting their original investment back.

Credit rating agency

A company that assigns credit ratings to debt issuers. Agencies include Fitch, Moody’s and Standard & Poor’s.

Credit spreads

The difference in income (yield) between two bonds that share similar traits – e.g. maturity – but have different credit ratings. For example, if a 10-year UK gilt trades at a 1% yield and a 10-year UK corporate bond trades at a 3% yield, then the credit spread is 200 basis points (2%).


A company whose profits and share performance are relatively dependent on the pace and stage of economic growth.



A company whose profits and share performance are relatively independent of the pace and stage of economic growth.


Derivatives are sophisticated investment instruments linked to the rise and fall of the price of other assets.

Developed markets

Countries that tend to have established industries, good standards of living and stable economies. They are considered safer for investment than less developed markets.

Dilution adjustment

Used to protect existing investors against the costs of buying and selling investments within the fund. It is normally only applied when those costs are significant.


The amount by which the share price is less than the net asset value per share.


Holding a variety of different investments across different asset classes with the aim of reducing risk.


A payment from a company to its shareholders, usually made in cash. Payments are generally made quarterly, bi-annually or annually.

Dividend reinvestment

When dividends are automatically invested in additional shares of a fund, instead of a cash payment.

Dividend yield

The annual dividend per share divided by the current share price. It is useful for comparing investments.

Dual-priced fund

Dual-priced funds have separate prices for buying (offer price) and selling (bid price) units. The buying price is typically higher than the selling price.


A measure of a bond’s sensitivity to changes in interest rates. The longer the duration, the more sensitive it is.


Earnings per share (EPS)

A financial measure showing a company’s profitability, calculated as income divided by the number of ordinary shares.

Economic cycle

The changes that occur over time in an economy. The four main stages of the economic cycle are: expansion, peak, recession and recovery.

Emerging markets

Developing countries that have stronger growth potential than established economies, but also more volatility.

Entry Charge

Often referred to as an initial charge, this is the charge that may be taken from your investment before the deal is placed in your chosen fund.


Equities are shares in companies.

Esoteric investments

Non-mainstream assets including fine art, furniture, vintage cars and forestry.

Ex-dividend date

If an investor purchases a share on or after this date, they will not be entitled to the next dividend payment.

Exchange-traded fund (ETF)

An ETF is a type of fund that holds a basket of different assets. Investors can buy and sell shares in the fund, which allows the convenience of making a single transaction with the convenience of exposure to different types of assets.


A recognised market where assets can be freely bought and sold. For example, the London Stock Exchange.

Exit Charge

This is the charge that may be taken from the proceeds of your investment when you choose to sell your investment. Columbia Threadneedle Investments does not apply an Exit Charge.


The amount by which a fund is invested in a particular security, market sector or industry.


Financial Conduct Authority (FCA)

The Financial Conduct Authority is the UK regulator for the financial services industry.

Fixed income

Investments such as bonds, which usually pay a fixed rate of interest.

Fixed-term savings accounts

Longer-term cash deposits for investors who don’t need access to their money for a fixed period.

Forward transactions

A contract between two parties to buy or sell a particular commodity or financial instrument at a pre-determined price at a future date.


A form of collective investment where investors’ money is pooled and invested in a variety investments.

Fund manager

An individual responsible for managing the assets in a fund.

Fund of funds

See Managed fund.

Fund volatility

The extent to which a fund’s value changes over time. The more pronounced and frequent the movements, the more volatile the fund is.


A way of determining the financial health of a company by looking at its financial accounts rather than the share price.


When a seller and buyer agree to a price now for something they won’t trade until a specified time in the future.



The extent to which a company is funded by shareholders and lenders. When the proportion of debt is higher than the equity a company is considered highly geared.


A bond issued by the UK government.

Government bond

Bonds issued by a government to raise money for spending requirements. These are usually issued in the country’s local currency.

Guaranteed income bonds

A life insurance company will issue a bond in return for a lump sum or regular monthly payment. This provides investors with a fixed rate of income for a specific period, usually between six months and 10 years.


Hedge fund

An alternative investment fund that may use a variety of strategies to deliver returns.


Hedging is a strategy to reduce or transfer risk in your portfolio.

High yield bonds

Corporate bonds issued by less secure companies. See also below investment grade bonds.

Historical yield

A fund’s yield over a given period of time. It is calculated by taking the income paid over a period and dividing it by the latest share price.



A method of measuring the collective value of a group of assets. For example, the FTSE 100 Index shows a single figure for the combined value of the 100 companies within it.


The rate at which the price of goods and services rise over time.


Infrastructure is physical systems of a business or nation—transportation, communication, sewage, water, and electric systems are all examples of infrastructure.

Illiquid assets

Assets that are difficult to sell or buy.

Initial public offering (IPO)

The first offering to the general public of a company’s shares. The shares are listed on one or more recognised exchanges so that they can be bought by investors.

Investment grade bonds

The highest-quality corporate bonds, as assessed by a credit ratings agency.

Investment objective

A description of how a fund will be managed and what investors can expect over a specific timeframe.

Investment trust

A closed-ended company (see closed-ended funds).

Investment universe

The choice of available investments a fund manager can pick, based on a fund’s investment objective.



Key Investor Information Document (KIID)

A document designed to help investors understand the nature and risks of a fund in which they may invest. Potential investors should always read the relevant KIID in order to make an informed decision before investing.



Leverage refers to a fund being exposed to assets or markets by more than 100% of its net asset value, usually to improve returns. Leverage can also mean how much a company has borrowed compared with how much it owns. See also Gearing.


Any current or future financial obligations that a company has towards a person or other company.


An interest rate agreed for short-term bank-to-bank loans. LIBOR is widely used as a benchmark for short-term interest rates.


The ease or difficulty of buying or selling an investment.

Long exposure

When a fund with a long/short equity strategy has a higher level of exposure to long positions than short.

Long position

A security that is bought in the expectation that it will rise in value over time.


A strategy that allows investment in long positions that benefit from price rises and short positions to take advantage of price drops.

Long-term investing

A long-term investor seeks to be invested over at least 5 years, often with a long-term goal in mind. People who invest for the long term are more likely to see the peaks and troughs of the stock market evened out over time.


Managed fund

An investment fund usually made up of a pool of other funds. An investor doesn’t invest directly in other types of security, but gains from broader asset exposure.


The difference between the cost of producing something and the revenue gained by selling it.

Market capitalisation

A measure of a company’s size, calculated by multiplying the total number of shares issued by the current share price. Companies are commonly grouped according to size as small-cap, mid-cap or large-cap.

Market risk