Our Funds

Glossary

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

A

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.

Annual Management Charge (AMC)

The fee paid to the investment manager for managing your investment in a fund.

Annuity

A type of insurance policy that provides a regular income in exchange for a lump sum.

Asset class

A generic type of investment, such as equities, bonds or cash.

Asset allocation

The practice of dividing your investment portfolio among different assets such as cash, equities, bonds, property and commodities.

B

Balanced portfolio

An investment portfolio that seeks to have a balance of risk and return by combining equity and fixed income assets.

Balance sheet

Accounting statement detailing a company’s assets and liabilities at a given point in time.

Bonds

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.

Bottom line

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).

C

Capital

The total assets of a person or organisation minus their total liabilities.

Capital growth

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.

Closed-ended funds

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.

Commission

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.

Commodities

Raw materials and agricultural products used across the world, such as wheat, livestock, oil or precious metals.

Compound Interest

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.

Corporate Bond

A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations.

Correlation

The extent to which one asset’s price moves in tandem with another.

Coupon

The agreed level of income paid by a bond.

Credit rating

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.

Cyclical

Company whose profits are relatively dependent on the pace of economic growth.

D

Dilution adjustment

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.

Discount

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.

Diversification

Spreading investments across different assets in order to reduce risk.

Dividend

A payment made to shareholders from part of a company’s profits.

Dividend yield

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.

E

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. 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.

Equities

Ownership of a company in the form of a stock, traded on stock exchanges.

Exit Charge

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.

Esoteric investments

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

ETF

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.

F

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.

G

Gearing

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.

Gilts

Specifically, a UK government bond (see Bonds).

Government bond

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.

H

High yield

The bonds issued by less secure companies.

I

Indices

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.

Inflation

The rate at which the general level of prices for goods and services is rising.

Investment Association

The Investment Association represents the UK investment management industry.

Investment grade

The bonds issues by relatively well-financed companies.

Investment trust

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

J

K

L

Liquidity

The ease or difficulty with which an investment can be bought or sold.

M

Managed fund

A portfolio made up of several underlying funds that invest in various asset classes. Also known as fund of funds.

Margin

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

Multi-asset fund

A recently-introduced type of managed fund that includes commodities, property and hedge funds as well as the traditional asset classes.

Mutual fund

A type of open-ended collective investment scheme.

N

Non-cyclical

Company whose profits are relatively independent of the economic cycle.

O

Open-ended funds

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)

The ongoing charges figure (OCF) is usually based on the last year’s expenses and may vary from year to year. It includes charges such as the fund’s annual management charge, registration fee, custody fees and distribution cost but excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund). For a more detailed breakdown please visit www.columbiathreadneedle.com/fees. In some cases, the ongoing charges figure may be based on an estimate of future charges, either because the share/unit class is relatively new and has an insufficient track record to be calculated exactly, or if historic figures are unlikely to accurately reflect future ongoing costs. The fund’s annual report for each financial year will include details of the exact charges applied. An OCF shown with an asterisk (*) indicates an estimated figure.

P

P&L

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.

PE ratio

Valuation measure defined as a company’s share price divided by its earnings per share.

Performance Fee

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.

Price-to-book value

Valuation measure defined as a company’s share price divided by the value of all its assets.

Premium

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.

Premium Bonds

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.

Profit

The excess of cash generated by a business over the cash used during the period.

Property

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)

Q

R

Rebates

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.

Revenue

Proceeds of a company’s sales.

S

Savings account

An account used to deposit money and to earn interest over time.

Sector

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.

T

Top line

Another term for a company’s revenues, or sales.

Total return

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.

U

Unit trust

A type of open-ended fund, with a single price.

V

Valuation

Way of assessing the cheapness of company shares. Examples include price to earnings ratio and dividend yield.

Volatility

The extent to which the value of an investment fluctuates over time.

W

With-profits Investment Bond

A lump-sum investment which guarantees a capital return plus the profits which have accumulated during its lifetime.

X

Y

Yield

The income return on an investment.

Z