Here is a simple reference guide to some of the technical terms that you may come across as you explore your investment options.
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.
Annual Management Charge (AMC)
The fee paid to the investment manager for managing your investment in a fund.
A type of insurance policy that provides a regular income in exchange for a lump sum.
A generic type of investment, such as equities, bonds or cash.
The practice of dividing your investment portfolio among different assets such as cash, equities, bonds, property and commodities.
An investment portfolio that seeks to have a balance of risk and return by combining equity and fixed income assets.
Accounting statement detailing a company’s assets and liabilities at a given point in time.
Bonds are debt issued by governments or companies to raise money. Bonds promise a set amount of interest until the bond matures at a fixed date in the future.
Bank of England base rate
The interest rate at which the Bank of England lends to other financial institutions.
Bid offer spread
The difference between the buying and selling prices of a dual priced fund. It broadly comprises the initial charge plus the difference between the buying and selling prices of the underlying investments plus any other costs involved in buying or selling the underlying investments.
Another term for profit or loss (derived from the fact that this figure is shown on the bottom line of a company’s P&L account).
The total assets of a person or organisation minus their total liabilities.
An investment return generated by changes in the price of a share.
Cash flow statement
Financial statement showing all the inflows and outflows of cash over a given period.
A company that invests in other companies or assets. With a closed-ended fund, such as an investment trust, there are a set number of shares and this number does not change regardless of the number of investors.
Collective investment fund
A fund that combines the assets of various individuals and organisations to create a large, well-diversified portfolio.
A payment, which may be made by the firm which manages a fund, from the fund’s annual management charge, to an intermediary that provides financial advice, but only if you have invested in the fund before 1st January 2013 or are making ongoing regular investments in a fund based on advice received before 1st January 2013.
The amount payable is usually based on a percentage of the value of the capital invested.
Since 1st January 2013, fund management firms cannot pay commission to advisers on newly-advised purchases. Advisers will instead agree a fee with you, their clients.
Raw materials and agricultural products used across the world, such as wheat, livestock, oil or precious metals.
The interest calculated on the initial loan and also on the accumulated interest of previous periods of a loan, in other words it is the interest on the interest.
The extent to which one asset’s price moves in tandem with another.
The agreed level of income paid by a bond.
The independent rating given to an issuer’s bonds. 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.
Company whose profits are relatively dependent on the pace of economic growth.
Without a dilution levy, the dealing fees arising from net purchasers or sellers of a fund can dilute the fund itself (that is, reduce the value of the remaining units or shares). Sometimes a management group will adjust the price to reflect this.
The flip-side of a premium, a discount is the amount by which the share price is less than the net asset value per share.
Spreading investments across different assets in order to reduce risk.
A payment made to shareholders from part of a company’s profits.
Valuation measure defined as the dividend divided by the share price.
Dual Priced Fund
Dual priced funds have a separate price for buying (offer price) and selling (bid price) units in the fund.
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. Columbia Threadneedle Investments does not apply an entry charge, however, if an entry charge was introduced in the future, it would be limited to the figure shown in the Prospectus/KIID. In contrast to Columbia Threadneedle, some fund distributors may choose to apply an entry charge if you buy our funds through them so please be sure to understand whether that is the case, before investing.
Ownership of a company in the form of a stock, traded on stock exchanges.
Columbia Threadneedle Investments does not apply an Exit Charge. This means when you choose to sell your investment, the proceeds of your investment will be paid to you without any deduction being made.
Non-mainstream assets such as fine art, furniture, vintage cars and forestry.
An Exchange-Traded Fund. These can be bought and sold like single company shares, but they track an index or commodity, allowing investors the convenience of purchasing a broad basket of securities in a single transaction, essentially offering the convenience of a stock with the diversification offered by a pooled fund, such as a unit trust.
Financial Services Compensation Scheme (FSCS)
The UK’s statutory compensation scheme for customers of authorised financial services firms.
Final Salary Pension
A pension scheme that provides pension benefit to employees, based on a formula that takes into account an employee salary at or near retirement and length of service.
Fixed-term Savings Accounts
Longer term deposit accounts, popular with investors who do not need access to their money for a fixed period of time.
Fund of funds
See managed fund.
When you borrow money to buy assets. The technique is widely used by investment trust managers. The more a manager uses gearing, the greater the potential for profit or loss, because if markets rise in value, the company will make enough profit to pay back the debt (and interest) and leave something extra for shareholders. But if markets fall, the manager may not be able to cover the borrowing and interest costs, and could make a loss. So the more an investment company gears, the higher the risk.
Specifically, a UK government bond (see Bonds).
A debt security issued by a government to support government spending, most often issued in the country’s domestic currency. Government debt is money owed by any level of government and is backed by the full faith of the government.
Guaranteed Income Bonds
A bond issued by a life insurance company designed to provide investors with a fixed rate of income for a specific period of time.
The bonds issued by less secure companies.
A way of measuring the collective value of a number of assets (e .g. the FTSE 100 Index gives a single value for the combined value of the 100 companies within it).
Individual Savings Account (ISA)
A tax-efficient way to save/invest. The allowance for the 2017/2018 tax year is £20,000.
The rate at which the general level of prices for goods and services is rising.
The Investment Association represents the UK investment management industry.
The bonds issues by relatively well-financed companies.
A closed-ended company (see closed-ended funds).
The ease or difficulty with which an investment can be bought or sold.
A portfolio made up of several underlying funds that invest in various asset classes. Also known as fund of funds.
The difference between the cost of producing something and the revenue gained from selling it.
A recently-introduced type of managed fund that includes commodities, property and hedge funds as well as the traditional asset classes.
A type of open-ended collective investment scheme.
Company whose profits are relatively independent of the economic cycle.
A collective investment fund that invests in other companies and assets. As more people invest in the fund, it gets bigger; it shrinks as people take their money out.
OEIC (open-ended investment company)
A type of open-ended fund, with a single price.
Ongoing Charges Figure (OCF)
Financial statement detailing the wealth created by a company’s activities over a given period.
Passive / Tracker funds
Passive funds aim to replicate the performance of an index, such as the FTSE 100. This means performance will rarely exceed that of the index it is tracking. However, because they usually require no active management, they tend to be cheaper than active funds.
Valuation measure defined as a company’s share price divided by its earnings per share.
Some of our funds charge a performance fee if certain performance criteria are met. This is a payment made where the fund generates returns in excess of a set target. It is paid in addition to the annual management charge. If the fund does not meet this target, a performance fee will not be payable. The figure shown is averaged from the actual performance fees applied over the previous five years or may be based on a proxy if sufficient data is not available.
Valuation measure defined as a company’s share price divided by the value of all its assets.
This is the percentage amount by which a closed-ended fund’s share price exceeds the value of its assets (as expressed by its net asset value per share or NAV). If an investment trust is much in demand, its share price can easily rise to a premium over its net asset value.
A lottery bond issued by National Savings and Investments agency. The bonds are entered into a monthly prize draw and the government promises to buy them back, on request, for their original price.
The excess of cash generated by a business over the cash used during the period.
In an investment sense, this normally means commercial real estate such as offices, retail units or distribution warehouses.
Property Expense Ratio (PER)
There are a number of costs related to running and maintaining property funds that are not covered as part of the Ongoing Charges Figure (OCF). These additional costs are grouped together to form the Property Expense Ratio (PER), which includes:
- Non-recoverable property management fees
- Service charge shortfalls and holding costs such as empty rates and security
- Rent review and lease renewal costs
- Maintenance and repairs (not improvements)
- Property insurance costs / rebates
- Amortised debt financing fees / costs
- Debt valuation fees
- Marketing of vacant space
- Project management fees (where not capitalised)
Fund management firms often pass on some or all of their annual management charge to intermediaries such as brokers and platforms, in the form of a rebate – which they often pass onto the end investor. However, the Financial Conduct Authority is in the process of banning rebates paid in this way.
Retail Price Index (RPI)
The measure of inflation published monthly measuring the change in the cost of a basket of retail goods and services.
Proceeds of a company’s sales.
An account used to deposit money and to earn interest over time.
Way of grouping companies according to the industry that they operate in.
Self Invested Personal Pension (SIPP)
A government approved personal pension scheme which allows investors to make their own investment decisions from a full range of investments approved by HM Revenue and Customs (HMRC).
Stocks and Shares ISA
A tax-efficient investment account.
Another term for a company’s revenues, or sales.
The return on an investment, including income from dividends and interest, as well as appreciation or depreciation in the price of the asset, over a given time period, usually a year.
A type of open-ended fund, with a single price.
Way of assessing the cheapness of company shares. Examples include price to earnings ratio and dividend yield.
The extent to which the value of an investment fluctuates over time.
With-profits Investment Bond
A lump-sum investment which guarantees a capital return plus the profits which have accumulated during its lifetime.
The income return on an investment.