Investment Glossary

Absolute return

The total gain or loss on an investment over a set period, expressed as a percentage – regardless of how the benchmark or wider market has performed. If a fund returns 8% in a year, that is its absolute return, whether the market rose 20% or fell 5%.

Accumulation and income units (Acc and Inc)

Different share classes of the same fund that determine how investment income is treated. Income units (Inc) pay dividends or interest out to you as cash. Accumulation units (Acc) reinvest that income back into the fund, so your holding grows in value instead. The underlying investments are identical.

Active fund

Funds that are managed by one or more fund managers who use their judgement to pick which investments to hold in the fund. An active fund should be judged against a benchmark and aims to deliver a higher return than that benchmark after fees.

Active management

Where a professional fund manager chooses the companies and amount they want to invest in them, instead of simply copying a stock market index, such as the FTSE 100.

Active share

This shows how different a fund is to its reference index. A fund that has no holdings in common with its reference index will have an active share of 100%, and a fund that has exactly the same holdings as the reference index will have an active share of 0%.

AIM

The Alternative Investment Market is a sub-market of the London Stock Exchange (LSE). It has fewer regulations than the LSE and was introduced to help smaller companies raise capital by listing their shares there.

Alpha

This is a word commonly used to describe a fund manager’s skill. Alpha is the excess risk-adjusted return of a fund over and above its chosen benchmark. The higher a fund manager’s Alpha, the better their performance is.

AMC

Annual management charge – the annual fee the fund provider charges to manage a fund. It is shown as a percentage, for example 0.75%.

Annualised returns

This is when returns are converted into an annual rate. Returns covering a period of more than one year are averaged to present a return for a 12- month period.

Asset

Anything that has a value that can be converted into a cash price.

Asset Allocation

The mix and proportion of different asset classes that an investor holds in their portfolio. This will vary depending on their risk tolerance and time horizon. You can make your own asset allocation decisions or a professional fund manager or financial adviser can make the decisions for you.

Asset manager

The company that manages one or more funds for institutional and/or retail investors. The name of a fund typically includes the name of the asset manager.

Assets under management (AUM)

The total value of all the money a fund group or investment company manages across its funds. It is a measure of the firm’s overall size, not the size of any single fund. For the size of an individual fund, see fund size.

Basis point (bps)

This is a precise financial measurement that’s often used to explain interest rate movements more accurately and eliminate confusion. One basis point is equal to one hundredth of 1% (i.e., 0.01%).

Bear market

This describes a situation when a market has fallen by 20% from its peak. A fall of this magnitude often takes a few weeks or months to occur and signals a period when investors typically feel very pessimistic. It is the opposite of a bull market.

Bed and ISA

Selling an investment you hold outside a tax wrapper and immediately buying it back inside your ISA, so that future growth and income are sheltered from tax. It uses up part of your annual ISA allowance. The sale can also trigger capital gains tax, so it is often done in stages. Most platforms will carry out both trades as a single instruction.

Behavioural finance

A subset of Behavioural Economics that studies how human psychology and subconscious bias can influence fund managers’ and investors’ decisions and behaviour. The core argument is that investors do not always make rational decisions.

Benchmark

A standard against which a fund is compared, usually the average of its peer group or a stock market index. For example, a fund investing in UK equities may be benchmarked against the FTSE 100 index.

Beta

A word used to describe the measure of a fund’s volatility in comparison to the market. A beta score above 1 means the fund is more volatile than the overall market, while a beta score below 1 means it is less volatile.

Bond

Like a loan or IOU, bonds are issued by companies or governments to finance projects and operations. They pay a regular income and, unless the company or government goes bust, the initial investment will be repaid on a specific date in the future. Generally, the riskier the bond, the higher income they will pay.

Book value

The accounting value of a company’s assets less its liabilities. It is the expected value of a firm if it were to sell all the assets on its balance sheet and cover its outstanding debts and obligations.

Bottom-up

A management style where the manager prioritises individual stock selection over industry, sector or wider economic factors.

Bull market

When prices are rising and the value of the market is going up, over a long period of time. It is usually also a time when an economy is strong, and investors are feeling confident. It’s also the opposite of a bear market.

Call option

An agreement that gives an investor the right, but not the obligation, to buy a company, bond, commodity, or other instrument at a specified price, within a specific time period. In return for this right, the seller, or option ‘writer’, receives a payment from the buyer. The value of a call rises when the underlying asset increases in price.

Callable bond

A bond, which can be bought back by the issuer prior to its maturity date. The issuer will usually ‘call’ the bond if interest rates fall and they can re-issue the bond at a cheaper rate. The call feature is an advantage for the issuer and consequently investors will demand a higher yield as compensation to hold these bonds.

Capex or Capital Expenditure

The money invested by a company to acquire, or upgrade fixed, physical, non-consumable assets such as property, plants, buildings, technology, or equipment.

Capital gain

Simply put, this is the profit you make from the sale of your investment.

Capital Gains Tax (CGT)

You have to pay this tax on any gains you make on your investments. However, if you invest through an ISA or a SIPP up to the annual limit, this tax does not apply. This is why you should make full use of your ISA and pension allowances.

Capital loss

The opposite of a capital gain. Importantly, it’s only a loss if you sell the asset. The value of investments can fluctuate, and it might become a capital gain in the future!

Cash flow

The net amount of cash and cash equivalents being transferred in and out of a company. Cash received signifies inflows, and cash spent signifies outflows.

Commodities

Assets that have very little differentiation and are often used in the production of other goods or services. Examples include gold, oil, sugar, grains and livestock. They can be traded on specific exchanges, or an investor can get access via a commodity focused fund.

Compounding returns

The process by which gains or losses accumulate on both your original investment and previous gains or losses over time. The resulting cumulative return is usually expressed as a percentage. One common example is compound interest on a bank account.

Contrarian investing

An investment style in which investors go against the herd. Contrarians typically invest in out of favour companies. Also see value investing.

Convertible bond

A bond, issued by a company, that may be converted into shares in that company for a pre-stated price.

Corporate bond

A bond issued by a company rather than a government. In effect you are lending the company money in return for a fixed income and the repayment of your capital at the end of the term. Because companies are more likely to run into difficulty than a developed-market government, corporate bonds usually pay a higher income than UK gilts, for example.

Coupon

The interest you receive from a government or corporate bond.

CPI or Consumer Price Index

An index that measures the overall change in consumer prices based on a representative basket of goods and services over time. It is the metric often used to measure inflation.

Credit rating

An assessment of the credit worthiness – or ability to pay interest on loans – of a borrower. Assessment is undertaken by a credit ratings agency such as Standard and Poor’s, Fitch or Moody’s.

Cumulative performance

The total change in the value of an investment over a specified period. For example, a five-year cumulative return combines the performance across all five years into a single figure, showing how much the investment has gained or lost over the whole period.

Cumulative return

The aggregate performance of a fund or company. For example, company X had a cumulative return of 20% over the past three years.

Currency hedging

A strategy used to reduce the impact of exchange-rate movements on returns. In global funds, hedging can limit the effect of changes between your home currency (for example, the pound) and the fund’s overseas investments, such as the US dollar. It costs money and works both ways: it also removes gains that would otherwise come from favourable currency moves.

Cyclical

This describes an industry or company that is sensitive to the business cycle. Revenues are generally higher during times of economic prosperity, but lower during times of contraction or recession.

Derivatives

A derivative is a contract between two or more parties, the value of which is determined by fluctuations in the underlying asset. The most common forms of derivatives are futures contracts and options.

Developed market

A country that has a stable, highly industrialised economy and relatively high GDP per capita. It also has advanced and regulated capital markets (or stock markets) with good liquidity. Examples include North America, Japan, UK, Australia and Germany.

Discount and premium

Terms used with investment trusts. Because their shares trade on the stock exchange, the price can differ from the net asset value (NAV) of what the trust owns. A share price below NAV means the trust is trading at a discount; above NAV, at a premium. Discounts and premiums widen and narrow over time.

Discrete performance

Performance measured over separate, individual periods rather than combined into one figure. For example, instead of showing one cumulative return for five years, discrete annual performance would show five figures (one for each individual year). It can also be shown over other periods, such as individual quarters.

Diversification

This is when you spread your investment over several different assets, sectors or geographies.

Dividend allowance

The amount of dividend income you can receive each tax year outside an ISA or pension before tax is due. Above that threshold, dividends are taxed at a rate that depends on your income tax band. Dividends paid inside an ISA or pension are not affected.

Dividend Yield

A ratio that shows how much a company pays out in dividends each year relative to its share price.

Dividends

Payments made by companies (or funds) when they share profits with their shareholders.

Duration

A term used when describing the average time to maturity of a bond measured in years. The longer the duration, the more sensitive the bond is to changes in interest rates.

Economic indicators

Think of economic indicators as the “”weather forecasts”” for the economy. Just like a sunny sky predicts beach weather, indicators like GDP, unemployment rates, and inflation hint at whether the economy’s booming or busting. They’re the clues economists use to guess if it’s time to grab an umbrella!

Emerging market

An emerging market is a country that is like a developed market but is less advanced. Usually, regulation and market liquidity tend to be less developed than in developed markets. But, as emerging markets tend to grow faster than developed markets, they have the potential to deliver higher returns (and risk) for investors.

Engagement

This is when fund managers or fund management firms have proactive, targeted dialogue with companies or other industry stakeholders in order to make known areas of concern with the aim of encouraging tangible, positive change.

EPS or Earnings Per Share

The profits of a company attributed to each share, calculated by dividing profits after tax by the number of shares. EPS serves as an indicator of a company’s profitability.

Equities

Also known as shares or stocks. Companies around the world issue shares and investors can buy (and sell) those shares. You don’t own part of the company, as such – you can’t just walk in and take a desk or a computer – you own some of its equity and can vote on how the company is run.

ESG or Environmental, Social and Governance

These are the three key factors when measuring the sustainability and ethical impact of an investment in a business or company.

ETF or Exchange-traded fund

This is an investment vehicle, the units of which are traded on a stock exchange. An ETF can hold a range of assets such as stocks or bonds. Most ETFs track an index, such as the FTSE All share or the S&P 500, so they are typically passive investments.

FCA (Financial Conduct Authority)

The UK’s financial regulator. It authorises and supervises firms including fund managers, platforms and financial advisers, sets the rules they must follow, and can fine or ban those that break them. You can check whether a firm is authorised on the FCA register.

Free Cash Flow

The cash generated by a company from its normal business operations after subtracting any money spent on capital expenditures.

FSCS (Financial Services Compensation Scheme)

The UK’s compensation scheme for when an authorised financial firm fails. For investments it can pay out up to a set limit per person, per firm. It covers the failure of the firm itself – not investments that simply fall in value.

FTSE

The Financial Times Stock Exchange – the FTSE Group is home to several market indexes. The most well-known is the FTSE 100, which refers to the UK’s 100 largest listed companies by market capitalisation.

Fund manager

Also referred to as investment manager (IM), portfolio manager (PM) or just FM for short. It is the person who manages the fund and makes decisions for what to buy and sell.

Fund size (fund AUM)

The total value of the investments held within a fund, usually expressed in millions or billions of pounds. Fund size can grow as more investors put money into the fund or as its investments rise in value, and fall when investors withdraw money or investments decline. It’s a useful piece of information about the scale of a fund.

GDP or Gross domestic product

The total value of all things made, and all services provided in a country within a certain time frame, like a year. It’s used to track the overall health of the economy.

Gearing

This refers to the ratio of a company’s debt relative to its equity, expressed as a percentage. It shows the extent to which the company’s operations are funded by lenders versus shareholders. When it is used in conjunction with an investment trust, it is referring to the amount of money the trust has borrowed to buy extra shares or assets.

Ghosting

The practice of ‘ghosting’ is illegal and is when two or more market makers (dealers buying or selling stocks or other assets) attempt to influence the price of a company share in order to make a profit. It is illegal because market makers are required by law to act in competition with each other and not collude. The term ghosting is used as it is a practice that is difficult to detect.

Gilts

A type of bond issued by the UK government. Government bonds are considered one of the safest investments in the market with low risk and low return characteristics.

Greenwashing

When companies say one thing and do another when it comes to their environmental promises – for example using misleading or exaggerated claims.

Growth investing

An investment style focused on companies expected to grow their earnings faster than the wider market. Growth investors will often pay a high price today, in the belief that future profits will justify it. It is the counterpart to value investing and the sister style to quality investing.

Hedging

This is when a manager tries to reduce risks to a fund from adverse movements in interest rates, markets, currencies or share prices. Similar to ‘hedging your bets’.

High yield bond

A corporate bond issued by a company with a lower credit rating, which has to pay a higher income to attract lenders. Previously known as a junk bond. High yield bonds can behave more like shares than other types of bonds. They often benefit when the economy is doing well but can struggle when it is not, as investors worry about companies’ ability to repay their debts.

IA sector

The Investment Association (IA) groups UK funds into sectors – UK All Companies, Global, Sterling Corporate Bond and so on – so that similar funds can be compared with each other. Sector is what most performance rankings and quartile positions are measured against.

Index fund

Another name for a tracker fund, and a type of passive investment. Instead of choosing which stocks or assets to invest in, the fund simply replicates an index such as the FTSE 100 or the S&P 500.

Index-linked gilts

UK government bonds whose income and final repayment rise in line with inflation, as measured by the Retail Prices Index. Conventional gilts pay a fixed amount, which inflation erodes over time. Often called linkers, they remain sensitive to interest rate movements and can still be volatile.

Inflation

The measure of the rise in prices for goods and services over time. It is also, therefore, the measure of the fall in purchasing power for a single unit of currency over time. For example, you can buy less with £100 today than you could buy with £100 a decade ago, as a result of inflation.

Infrastructure

Investment in the essential physical assets an economy runs on: roads, railways, power grids, water networks, hospitals and data centres. Infrastructure funds invest in the companies that own, operate or develop these assets.

Investment fund

A type of investment that pools the money of lots of different investors and provides a broader selection of opportunities at a more easily accessible price. There are different types of funds, for example open-ended, close-ended, exchange traded funds (ETFs) and hedge funds.

Investment grade

The upper tier of bond credit ratings, covering issuers judged most likely to keep up their payments. Anything rated below that line is high yield.

Investment trust

A fund that is also a company, with its shares listed on the stock exchange. It has a fixed number of shares, which you buy and sell like any other share. This structure lets managers hold assets that are harder to sell quickly, and borrow money to invest. It also means the share price can sit above or below the value of the holdings.

IPO or Initial Public Offer

When shares are offered to the public prior to being traded on a stock exchange for the first time.

ISA

Individual Savings Account. A tax-efficient savings or investment account. The investor does not have to pay CGT on any gains made. There are different kinds of ISAs and each comes with a different set of rules, but all have caps, called an ISA allowance, on how much money you can put into them.

ISA allowance

The maximum you can pay into ISAs in a single tax year. For 2026/27 it is £20,000 per person, which you can split across different types of ISA. The allowance resets on 6 April and cannot be carried forward – if you have not used it by 5 April, it is gone. Junior ISAs have a separate allowance.

Junior Debt

When bonds are issued they have a scale ranging from secured debt (loans secured against something) through to junior debt, which has a lower priority for repayment if something goes wrong. So, in the event of a bankruptcy, for example, junior debt can only be paid after the claims of secured creditors and senior debt obligations have been satisfied. Because it is riskier, junior debt often has a higher yield than senior debt. Another name for junior debt is subordinated debt.

Junior ISA (JISA)

A tax-efficient account for under-18s, opened by a parent or guardian but legally belonging to the child. It has its own annual allowance, for 2026/27 it is £9,000 per child, separate from an adult’s. From age 16, the child can take over managing the account and make their own investment decisions, however, no money can be withdrawn until the child turns 18, when the account converts to an adult ISA. It replaced the Child Trust Fund.

Junk Bond

A junk bond is another name for a high yield bond. It’s a corporate bond that has a lower credit rating as compared to an investment-grade bond but it offers a higher interest rate.

KPI

A key performance indicator (KPI) is a value that measures to what extent an organisation is achieving its business objectives.

Lifetime ISA (LISA)

An ISA for 18 to 39 year olds saving for a first home or retirement. The government adds a 25% bonus to what you pay in, up to an annual limit that counts within your overall ISA allowance. Withdraw the money for anything other than a first home, or before age 60, and a charge applies that can leave you with less than you put in. Although the government plans to replace the LISA with a new First Time Buyer ISA for new savers, existing LISA holders will be able to continue using their accounts.

Liquidity

This refers to how easy it is to quickly buy or sell an asset at a price reflecting its current value. If an asset is illiquid, it is hard to do this.

Market cap

This is the size of a company. It’s calculated by multiplying the number of shares available by their price on the stock market. For example, a company with a million shares priced at £10 each would have a market capitalisation – or market cap – of £10m. Companies are commonly grouped according to their market cap size: small cap, mid cap, large cap, and mega cap.

Maximum drawdown

The largest peak-to-trough fall a fund has suffered over a given period. If a fund dropped 35% from its high before recovering, its maximum drawdown was 35%. It gives an indication of how severely the fund has fallen during difficult market periods.

Money market fund

A fund that invests in cash and very short-dated, high-quality debt. It aims to preserve capital and deliver a return roughly in line with interest rates, rather than to grow your money over the long term. It is not a savings account, and does not carry the same FSCS protection as a bank deposit.

Multi-asset fund

A fund that invests across several asset classes at once – typically shares, bonds, property and cash. The manager handles diversification and asset allocation for you, adjusting the mix as conditions change. They usually come in a range of risk levels, from cautious to adventurous.

NAV or Net Asset Value

The total assets of a fund or company minus all liabilities and prior to charges. Net asset value per share is calculated by dividing this figure by the number of ordinary shares/units in issue.

Net Zero

Achieving a balance between emitting carbon and absorbing carbon from the atmosphere. This balance, or net zero, will be achieved when the amount of carbon added to the atmosphere is no more than the amount removed.

OCF or Ongoing charges figure

This is a fund’s operational costs over the course of a year. The OCF includes the annual management charge and other costs such as registration, regulatory, audit and legal fees. Importantly, it does not include transaction costs or performance fees.

OEIC (Open-Ended Investment Company)

One of the two main structures for UK funds, alongside unit trusts. Open-ended means the fund grows and shrinks with demand: shares are created when money comes in and cancelled when it goes out. Because the price is based directly on the value of the underlying investments, an OEIC cannot trade at a discount or premium.

Open-ended and closed-ended

The two ways a fund can be structured. An open-ended fund – an OEIC or unit trust – creates and cancels units as investors come and go, so it always trades at the value of what it holds. A closed-ended fund – an investment trust – has a fixed number of shares traded on the stock exchange, so its price is set by supply and demand.

Operating Margin

Measures how much profit a company makes on a pound (or relevant currency) of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax.

Operating Profit

A company’s gross income less operating expenses and other business-related expenses, such as wages, cost of goods sold (COGS) and depreciation.

Overweight

This refers to when the percentage of an individual stock, sector, or geography is higher in a fund than in its relevant benchmark. For example, a fund may have 20% in utilities companies, but the benchmark only has 4%.

P/B or Price-to-Book Ratio

Measures the market’s valuation of a company relative to its book value. It is calculated by dividing the company’s stock price per share by its book value per share.

P/E or Price-to-Earnings Ratio

This is another valuation measure, this time calculated by dividing the current share price by the last published earnings per share (net profit divided by the number of ordinary shares). The ‘P/E ratio’ gives investors a quick and easy way of seeing how a company is priced relative to its peers (with a higher P/E being more expensive), although it should not be relied upon by itself.

Passive management

This replicates an index like the FTSE 100, and you invest in a company without consideration as to its future prospects. Passive funds are sometimes referred to as tracker funds.

Pension

A pot of money which is invested to give a person an income in retirement. There are three main types of pensions: workplace/defined contribution pensions, personal/private pensions and state pensions. For the first two, the size of the pension depends on how much money has been contributed over time and how the investments have performed.

PMI or Purchasing Managers’ Index

An index of the prevailing direction of economic trends in the manufacturing and service sectors. A PMI reading of less than 50 represents a contraction while a PMI above 50 indicates expansion.

Portfolio

This can refer to one of two things. It is either being used as another word for ‘fund’ or it is a way of describing the collection of assets in which you invest. So, if you invest in five funds, you have a ‘portfolio’ of five funds.

Pound-cost average

A strategy where you invest a set amount of money regularly instead of all at once. This helps smooth out market ups and downs because you buy more shares when prices are low and fewer when prices are high, reducing the risk of bad timing.

Private equity

Shares in companies that are not listed on a stock market.

Product summary (CCI)

The UK document that replaces the Key Investor Information Document (KIID) and Key Information Document (KID). It comes under the FCA’s Consumer Composite Investments regime: firms have been able to use it since 6 April 2026, and it becomes mandatory on 8 June 2027. It still sets out costs, risk and past performance, but with less rigid formatting.

QE or Quantitative easing

When a central bank increases the money supply to encourage lending and investing. It buys bonds to push up their prices and bring down long-term interest rates.

Quantitative tightening

This is the opposite of quantitative easing. A central bank will either sell bonds or let them mature, in effect removing money from the economy. This leads to higher interest rates.

Quartile

A fund’s performance relative to its peers is often referred to in terms of quartiles. For example, a first quartile fund is one whose performance ranks it within the top 25% of all funds in that sector.

Rebalancing

Adjusting your portfolio to maintain your intended mix of investments. If shares do well they grow into a larger share of your portfolio than you planned, potentially taking your risk level up with them. Rebalancing means adjusting your investments so your asset allocation remains in line with your chosen approach.

Recession

When the economy contracts for at least two consecutive quarters.

REIT

A real estate investment trust (REIT) is a listed company whose primary activity is property investment. REITs own many types of commercial real estate, for example, offices, warehouses, hotels, hospitals and shopping centres.

Return

Another word for the profit on an investment, or the performance of an investment.

Risk

In investment terms there are many types of risk and, just as in our everyday lives, risk is also very subjective. A risk to one person is not a risk to another. But for many investors, the biggest risk is that they could lose all their money.

ROIC or Return on invested capital

A calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments.

Santa rally

When markets tend to rise in December, fuelled by festive cheer, holiday spending, and investors adjusting portfolios before the year end. It’s not guaranteed, but hey — who doesn’t love the idea of stocks spreading some holiday cheer?

Screening

Refers to how ethical investors may use filters to exclude or include specific companies. A negative screen would exclude companies involved in tobacco or weapons, for example, while a positive screen actively finds companies with strong environmental or social practices.

SDR and investment labels

The FCA’s Sustainability Disclosure Requirements, introduced to stop greenwashing by controlling how funds are allowed to describe themselves. Funds meeting the rules can carry one of four official labels; those that do not cannot use sustainability terms in their name. This is different from FundCalibre’s ESG labels.

Share

A share is just one individual unit of stock. If a company has issued 1 million shares and you own 100, you own 0.01% of the company. Stocks and shares are often used interchangeably, but “”stock”” refers to ownership in general, while “”share”” is more specific.

Share class

Funds are often available in several versions, or share classes, which hold exactly the same investments but charge different fees or treat income differently. In the UK, clean share classes are those stripped of commission payments to platforms and advisers, so they usually carry a lower ongoing charges figure.

Sharpe ratio

A measure of how much return a fund has delivered for the risk it took. It compares the return above what you could have earned risk-free with how volatile that return has been. A higher Sharpe ratio means a smoother ride for the same reward, which is useful when comparing two funds with similar returns.

Shorting

An investment strategy that aims to profit when the price of an investment falls, rather than rises. It is also known as taking a ‘short position’.

SIPP (Self-Invested Personal Pension)

A personal pension that lets you choose your own investments, rather than picking from a short list set by a provider. You get the same tax relief as with any pension, but you can normally only access the money from age 55, rising to 57 in 2028. A SIPP is a wrapper, not an investment in itself.

Spread

A bond or yield spread refers to the difference in the yield on two different bonds or two different classes of bonds. This is usually the difference between a government bond and a corporate bond.

Stock

A stock represents ownership in a company. When you buy a stock, you own a small piece of that business and can benefit if it grows. Stocks and shares are often used interchangeably, but “”stock”” refers to ownership in general, while “”share”” is more specific.

Stock market index

A stock market index is made up of a number of different companies. The FTSE 100, for example, is a list of the UK’s largest 100 listed companies.

Stock-picker

Someone that selects specific companies in which to invest. Their task is to learn all about the businesses they’re considering, analyse their finances and decide whether they are worth investing in.

Stocks and Shares ISA

An ISA used to hold investments – funds, shares, bonds or investment trusts – rather than cash. Any growth or income inside it is free of capital gains tax and further income tax. It uses the same annual ISA allowance as other types of ISA.

Targeted absolute return

A fund that aims to make a positive return in all market conditions, even as the stock market declines, although positive returns are not guaranteed. Managers use a wider toolkit than a conventional fund, including derivatives and hedging. They may also take short positions, which aim to profit when an investment falls in value, as well as investing in assets they expect to rise.

Tax year end

5 April, the deadline for using that year’s ISA and pension allowances. Anything left unused disappears, which is why platforms (and financial advertising) get noticeably busier through March. The new tax year begins the next day, on 6 April, when allowances reset.

Top-down

This is when a fund manager takes into account the wider economic and market picture before allocating money to individual stocks.

Total return

The complete return from an investment, combining the change in its price with any income it paid out, assuming that income is reinvested. It is the fairest basis for comparing funds, because a fund paying a generous income can look weak if you only look at the price. Most factsheet performance figures are total return.

Tracking error

How closely a fund follows its benchmark. A passive fund aims for a very low tracking error, since it is trying to copy the index as precisely as possible. An active fund will have a higher one, because it is deliberately doing something different. On its own it says nothing about whether a manager is any good.

Turnover

A measure of trading activity within a fund, indicating how active a manager has been in buying and selling the assets held within the portfolio. Neither high nor low turnover is necessarily good or bad and the number will generally just reflect the individual manager’s investment style. For example, 100% turnover indicates that on average each stock is held for one year.

Underweight

This term refers to when the weighting of either an individual company, industrial sector or country in a fund is lower than that of its relevant benchmark index.

Unit trust

The older of the two main UK fund structures. Like an OEIC it grows and shrinks with investor demand, but it is set up as a trust, with a trustee holding the assets on your behalf, and you own units rather than shares. Many unit trusts have converted to OEICs, and for most investors the practical difference is minimal.

Value investing

Focuses on buying stocks that have good prospects, but which are out of favour with other investors. Typically, the shares are cheaper than the company’s intrinsic value.

Volatility

How fast, and by how much, the price of a security, sector or market changes over a period of time. A price that often moves significantly will be considered to have a high level of volatility.

Wall Street

Wall Street is the name of the street where you can find the New York Stock Exchange. It has become synonymous with the financial world and America’s financial centre.

Witching hour

Refers to the last hour of stock trading in the US – between 3pm eastern standard time (EST), when the bond market closes, and 4pm EST, when the stock market closes. Volatility in this 60 minutes can be higher than at other times during the day.

XD

When a company pays a dividend to its shareholders, it typically sets a date by which you must own the stock in order to be eligible to receive the dividend. After this date, the stock begins trading ex-dividend (or XD), which means that anyone who buys the stock after that date is not entitled to receive the next dividend payment.

Yield

A calculation of how much income an investment has generated in the form of interest (from cash or bonds), dividends (from shares) or rent (from a property) in relation to the price paid. The calculation is shown as a percentage.

Yield curve

The yield curve is a graph which plots interest rates for bonds which have different contract and maturity dates. Typically, bonds which mature sooner will have lower yields because investors’ money is tied up for a shorter amount of time. However, this is not always the case. When the yield curve is inverted – longer-dated bonds have lower interest rates than shorter-dated bonds – it is a signal of recession.

Zero-coupon bond

The main difference between a zero-coupon bond and a traditional bond, is that it does not make any periodic interest payments. Instead, the investment return is based entirely on the difference between the purchase price (which is usually significantly discounted) and the face value of the bond at maturity.

Zombie

A zombie company or investment product is one which is able to continue operating but will not expand. Essentially, a zombie company is a company that is barely surviving. An example of a Zombie investment product is the Child Trust Fund. It continues to be in place for existing investors but cannot take on new members (it has been replaced by the Junior ISA.