Financial jargon explained

Here you’ll find a simple explanation of some of the most commonly used investment terms. If there is any other financial jargon you want translated, please call our Customer Service Team free on 0800 597 2525 or email us at enquiries@willisowen.co.uk and they will be pleased to help.

     


A

Absolute Return

The return that an asset achieves over a period of time. This measure simply looks at the appreciation or depreciation (expressed as a percentage) that an asset faces over a period of time. Absolute return differs from relative return because it is concerned with the return of the asset being looked at and does not compare it to any other measure.

For example, if there has been a 5% increase in the price of Ford stock over the past year, then the holders of Ford stock have achieved an absolute return of 5% over the past year.

Accumulation Share

Shares where net income is automatically reinvested and is reflected in the price

Accumulation Unit

Units where net income is automatically reinvested and is reflected in the price.

Alpha

Alpha is a measure of a Fund's over- or under-performance by comparison to its benchmark. It represents the return of the Fund when the benchmark is assumed to have a return of zero, and thus indicates the extra value that the manager's activities have contributed: if the Alpha is 5, the Fund has outperformed its benchmark by 5%, and the greater the Alpha, the greater the outperformance.

A further aspect of Alpha emerges when it is taken in conjunction with Beta. Assuming that a strong R-Squared correlation exists, the Beta will show how volatile the Fund is compared to its benchmark, and thus indicate how much extra risk the manager has taken on in order to get that high-Alpha performance.

Negative Alpha in conjunction with 1+ Beta is an indication of poor performance: managers are subjecting Funds to volatility that is higher than the benchmark, while achieving returns that are lower than the benchmark attained. So, if Alpha indicates better/worse performance compared with the index, Beta shows higher/lower risk.

Alternative Investment Market (AIM)

Provides a forum for the listing of young and growing companies that do not meet the requirements for a full London Stock Exchange listing.

Annual Management Charge (AMC)

A charge, that is levied for the management of the Fund.

Asset Allocation

The allocation of a sum of money (or a proportion of the Fund) for investment in particular asset classes - for example, as between Shares, Cash, Bonds (fixed interest securities) or Property.

Assets

Another word for the type of holdings in your Fund. Assets can include Shares, Bonds or Cash.

Authorised Corporate Director (ACD)

An Authorised Corporate Director (ACD) is a regulated entity, performing a task within an OEIC structure similar to that of a manager of a Unit Trust scheme.