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 firstname.lastname@example.org and they will be pleased to help.
Package Units are held in investment trusts/investment companies and can contain a mix of Income Shares, Capital Shares and Zero Dividend Preference Shares, although this is dependent on the capital structure of the Investment Trust/investment company in question. Package Units are quoted on the Stock Exchange and holders receive a certificate for their holding.
This a market neutral strategy which aims to make a profit regardless of the direction of the overall stock market. Investors take a long and a short position in two highly correlated stocks (this could be, for example, two companies in the same sector engaged in similar activities). The proposition is to purchase shares in the company that has under- performed and sell short one that has out-performed in the expectation of mean reversion which is when their correlation returns to more normal levels.
A Fund that mirrors the performance of a specific index by holding the components of that index.
It aims to “track” the progress of an index, eg. the FTSE 100, by buying and selling Shares in the same proportions as represented on the index or by partially replicating the index.
These are also called tracker or index-tracker Funds.
The date on which the income distribution is paid to the investor.
Introduced in 1986 as a tax incentive to invest in stocks and shares. You can no longer add to a PEP investment, although any existing PEPs will have been converted into ISAs.
Internet-based service that offers information on and dealing in a range of authorised investment Funds offered by different firms.
A portfolio is the total of an investor’s different investments.
Investors who allocate a fixed sum of money (such as £50) in a Fund on a monthly or other periodic basis. When prices fall, the fixed amount will buy more units. Conversely when the prices rise, fewer units are bought.
The price/book (P/B) ratio of a fund is the weighted average of the price/book ratios of all the stocks in a fund's portfolio. Book value is the total assets of a company, less total liabilities (sometimes referred to as carrying value).
A company's book value is calculated by dividing the market price of its outstanding stock by the company's book value, and then adjusting for the number of shares outstanding (Stocks with negative book values are excluded from this calculation.).
The Price/Earnings Ratio or P/E Ratio is a stock's current price divided by the company's trailing 12-month earnings per share from continuous operations.
A fund's price/earnings ratio can act as a gauge of the fund's investment strategy in the current market climate, and whether it has a value or growth orientation.
The (P/E) ratio of a fund is the weighted average of the price/earnings ratios of the stocks in a fund's portfolio. The P/E ratio of a company, which is a comparison of the cost of the company's stock and its trailing 12-month earnings per share, is calculated by dividing these two figures.
Each portfolio holding is weighted by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund's final P/E.
A high P/E usually indicates that the market will pay more to obtain the company's earnings because it believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of popularity (e.g. telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth orientation. (P/Es can also be artificially inflated if a company has very weak trailing earnings, and thus a very small number in this equation's denominator.)
A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining, tend to have low P/E ratios, reflecting a value orientation.
A stock's current price divided by the company's trailing 12-month sales per share.
This represents the weighted average of the price/sales ratios of the stocks in a fund's portfolio. Price/sales represents the amount an investor is willing to pay for a dollar generated from a particular company's operations.
A stock's price/earnings ratio divided by the company's projected EPS growth.
The price/earnings ratio used in the numerator of this ratio is calculated by taking the current share price and dividing by the mean EPS estimate for the current fiscal year.
PAIFs are open ended investment companies (OEICs) with the potential for tax-efficient property investment. At least 60% of net asset value and income must consist of assets deemed to be ‘Property Investment Business’ and they distribute 3 different streams of income for tax purposes:
Most PAIFs have Unit Trust feeder Funds for investors who are unable to invest in the PAIF. PAIFs are authorised and regulated by the UK Financial Conduct Authority (FCA).