Welcome to APIR’s list of financial terms! Being a successful investor takes the right knowledge, practice and partnership. Here you will find a list of practical and common jargons that you will hear time and time again when doing investments. Come back regularly while we drop more terms into the Glossary, or let us know if there are certain financial terms that you would like explained. We might send it off to one of your favorite fund managers and get an explanation for you!


Abbreviation for Deposit-Taking Institution. A generic term describing financial institutions such as banks, building societies and credit unions which accept funds on deposit from the public and in return pay interest. Returns are not directly attributable to the performance of an underlying investment market. Also known as Approved Deposit Taking Institutions (ADI).

– Synonyms: DTI

Accrued Interest

This is the interest that has been earned on a security or bank deposit but not yet paid to you.

– Synonyms: Accrued Interest

Accumulated Interest

These are interest payments which are overdue and unpaid.

– Synonyms: Accumulated Interest

Active Management

This is a style of investment management which seeks to achieve returns that are above a specified benchmark by asset allocation and stock selection. This is the opposite of Passive Management strategies that have a lower risk profile.

– Synonyms: Active Management

Active Market

A market in which the volume of securities traded is significantly above normal trading activity.

– Synonyms: Active Market


Abbreviation for Annual General Meeting. The yearly meeting of a company, at which shareholders are asked to elect the directors, discuss any shareholder resolutions and approve the operating and financial results of the past year.

Allocation Price

The price at which units in a unit trust are issued by the fund manager. It is more commonly known as Purchase or Buy Price. It is the opposite of Redemption or Sell Price. In unit trusts Buy and Sell prices are usually struck on a daily basis.

– Synonyms: Allocation Price


The return a security or a portfolio would earn if the market rate of return were zero. Therefore a positive Alpha indicates that an investment has earned, on average, a premium above that expected for the overall market. A negative Alpha indicates that the investment returned an average premium lower than that returned for the overall market. Alpha is often used as a performance indicator. See also Beta, Delta.

– Synonyms: Alpha


a) Where an interest bearing liability is paid off through a series of instalments thereby reducing the outstanding balance owing, as opposed to paying it off in a single lump-sum payment. Instalments include both principal and interest components;

b) A technique to extinguish a liability or capital expenditure over a period of time, e.g. as in a typical home mortgage.


A trained person who investigates the facts concerning a given market, industry or individual security and reaches an educated conclusion based on evidence, about its advantages and disadvantages. The research and conclusions provided by Analysts can help professional advisers or investors to decide what action he or she should take.

Annual Report

A yearly record of a company’s financial condition including a description of the firm’s operations, its profit and loss accounts, balance sheet, and statements of cash flow. An Annual report must be provided by all public companies i.e. those that list on a stock exchange.

– Synonyms: Annual Report

Annualised Return

When the rate of return over periods other than a year is converted into annual terms; e.g. if an investment earned minus 3.5% in year one and 23.5% in year two, the compound return over two years would be 20%. This would convert into an annualised return of 10% per annum, even though the annual return in either year looked nothing like 10%. See also Compounding.

– Synonyms: Annualised Return


An individual who purchases an annuity and will receive regularly scheduled payments from that annuity.


An arrangement under which periodic payments, such as monthly payments, are made to a person in return for the investment of a lump sum. Annuities are a form of insurance and most commonly used for the purpose of providing retirement income. Each periodic payment received by the annuitant (see above) is a portion of the original lump sum that was invested, plus interest earned on it. See also Allocated Pension, Deferred Annuity.

– Synonyms: Annuity


Abbreviation for Asia–Pacific Economic Co-operation Group. An international grouping of nations in the Pacific, East Asia and North America established to advance regional interests and promoted free trade policies around the world. APEC commenced as the Asia Pacific Economic Forum in 1989, but rose to greater prominence in November 1993 when leaders of most member nations met in Seattle, United States, to formalise their combined regional policies and trade principles. The founding membership of APEC comprises Australia, Brunei, Canada, China, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and the United States; a grouping of nations representing approximately 40% of the world’s population, 40% of the world’s trade, and 50% of global gross domestic product.

– Synonyms: APEC


Sometimes an asset can attract different prices in different markets. Arbitrage is an investment technique that takes advantage of these countervailing prices to generate a return For example purchasing an asset for a low price in one market and then selling the same asset for a higher price in another market. Arbitrage is commonly associated with buying and selling currencies.

Arm’s Length

A description of a transaction conducted between associated parties that occurs on a strictly commercial basis. This ensures that the transaction proceeds on the basis that the parties are completely independent of each other. This term is commonly used in an institutional environment where for example, a large company may own many separate but related businesses that need to transact between each other. For example a bank may own a funds management business, a custodial business and financial planning and distribution businesses.

– Synonyms: Arm’s Length

Ask Price

The price at which the owner (holder) of a security, such as shares, is prepared to sell that security. See also Offer.

– Synonyms: Ask Price


Property or other items of value controlled by an economic entity as a result of past transactions or events. Assets are the opposite of liabilities. Items such as cash in a bank account, investments (such as shares, direct property and funds) are assets that are commonly owned by individuals and companies. Other types of assets typically held by corporations include accounts receivable (businesses that owe you money), raw materials for use in production, factories and land and inventories. Those assets that in the ordinary course of operation are likely to be consumed or converted into cash within 12 months of the last financial year are called current assets. All assets other than current assets are called non-current assets. Assets such as land, factories, buildings and machinery are normally non-current and known as fixed assets. Assets also include non-physical goods such as patents and goodwill which are referred to as “intangible assets”. See depreciation.

Asset Allocation

The percentage weighting of assets in an investment portfolio among different asset classes (shares, bonds, property, cash and overseas investment). For example a growth portfolio might be weighted as 50% International Shares, 20% Domestic Shares, 20% Property and 10% cash. This is also known as the Investment Mix. See also Growth Fund, Strategic Assets Allocation and Tactical Asset Allocation.

– Synonyms: Asset Allocation

Asset Backing

The value of a company’s assets underpinning its issued shares. Some companies may have a strong asset backing even if the dividends (yield) they pay on shares are relatively low. See also Net Asset Backing. This is the equivalent of an individual owning an expensive home but having little income or being said to be asset rich, cash poor.

– Synonyms: Asset Backing

Asset Class

A broadly defined category of financial assets, e.g. domestic shares, property, overseas bonds, cash, etc.

– Synonyms: Asset Class

Asset Value

The value of the assets underpinning a security. These may not be fully reflected in the price of a security. See also Net Asset Value.

Asset-Weighted Average

An average derived by comparing the returns earned by fund managers where those returns are weighted according to each manager’s respective size measured by assets under management. This is an alternative to the use of arithmetic averages and is used within the context of investment performance surveys.

– Synonyms: Asset-Weighted Average


Australian Stock Exchange. The stock exchange headquartered is Sydney, Australia. The ASX acts as a market operator, clearing house and payments facilitator, and also provides educational materials to retail investors.

– Synonyms: ASX

At a Discount

A security is said to be selling at a discount when the market value is below the par value of the security. This is also known as the security trading “below face value”. For example, shares trading at a discount (or premium) to net tangible assets can be said to be trading below (above) face value.

– Synonyms: At a Discount

At a Premium

A security is said to be selling at a premium when its market price is above its face (par) value.

– Synonyms: At a Premium

At the Close

A way of describing an order which is executed at the price obtainable “at the close” of the market on the day it is entered. This is often the case with managed funds that price daily where this process is known as forward pricing. See also Execute an Order.

– Synonyms: At the Close


Assets Under Management. AUM refers to the total market value of investments company manages on behalf of investors. (e.g. mutual fund, money management firm, hedge fund, portfolio manager, or other financial services company.)

Averaging Up or Down

The practice of purchasing the same security at various price levels, thereby arriving at a higher or lower average cost.

– Synonyms: Averaging Up or Down

Back-End Load

See Redemption Fee

– Synonyms: Back-End Load

Bad Debts

A term used to describe invoices (accounts receivables or Debtors) that cannot be collected. These debts constitute losses that should be written off.

– Synonyms: Bad Debts

Balance Sheet

A key financial statement showing the nature (such as fixed or current) and amount of a company’s assets, liabilities and capital at a point in time i.e. on a given date. In one column all the company’s assets are listed with their values, and in the other all its liabilities and the equity of the shareholders. Under double entry accounting rules the totals of both columns must equate. Refer to Profit and Loss Account which is produced periodically (typically monthly) and supports the generation of the Balance Sheet.

– Synonyms: Balance Sheet

Balanced Fund

An investment portfolio with holdings spread over a range of asset classes which typically include shares, fixed interest, property, overseas securities and cash. As opposed to Growth Funds that have a higher weighting towards normally higher performing (and riskier) asset classes such as shares and Conservative Funds that have a higher weighting to normally lower performing (less risky) asset classes such as fixed interest and cash and “sector specialist funds”, which invest solely in one asset class. See also Specialist Sector Management.

– Synonyms: Balanced Fund

Basis Point

A measurement of fluctuation of an investment such as a managed fund, equal to one hundredth of one percent. For example 10 basis points equals 0.1%. Interest rates ore often quoted as increasing/decreasing by say 25 basis points which equates to a 0.25% movement. Investment products fees and other charges are often expressed in basis points.

– Synonyms: Basis Point


Someone who believes the market will fall. Opposite of Bull.

– Synonyms: Bear

Bear Market

A market in which prices decline sharply, usually against a background of widespread pessimism. Historically Bear markets have proven to be generally, of shorter in duration than bull markets. See also Bull Market.

– Synonyms: Bear Market

Below Par

A price that is less than the face value (par value) of a security. See Par Value

– Synonyms: Below Par


An index or other technique for market measurement which is used by a fund manager as a yardstick against which the risk and performance of a portfolio can be assessed or compared; e.g. the Accumulation Index and ASX 200 are examples of commonly used benchmarks for share portfolios. The benchmark usually represents the minimum performance objective.

– Synonyms: Benchmark

Benchmark Portfolio

A model portfolio (reflecting an investment mix) which is developed to provide a standard for measuring a fund manager’s risk and return performance, and to reflect an investor’s preferred level of risk over a complete market cycle. A benchmark portfolio will typically include indices (as benchmarks) for each individual sector for each asset class held within the portfolio.

– Synonyms: Benchmark Portfolio

Beneficial Interest

The entitlement to receive benefits generated by assets held in another party’s name. For example an investor in a managed fund will have a Beneficial Interest in the fund even though a custodian or trustee holds legal title to the units in the fund. See also Beneficiary.

– Synonyms: Beneficial Interest

Beneficial Owner

A term describing the party which is ultimately entitled to receive the economic benefit of an asset (refer Beneficial Interest), even if the asset is legally registered in the name of another entity. For example, members of a superannuation or pension fund are beneficial owners of the fund’s assets, even though legal title to those assets is normally vested in a trust.

– Synonyms: Beneficial Owner


The person or organisation which is entitled to receive the benefits generated by an asset, where the asset is legally registered in the name of another party, such as a Trustee.

– Synonyms: Beneficiary


A statistical measure of market sensitivity; i.e. the extent to which a share or a portfolio fluctuates with the market. Beta is a statistical estimate based on historical data. It is the average percentage change in a fund’s or a security’s rate of return that corresponds to a one percent change in the market. Because the market always has a Beta of 1, a security (or portfolio) with a Beta of 1.2 would be expected to perform some 20% worse when it falls or 20% higher when it rises. Similarly, a Beta of 0.5% implies a movement equal to only half the market’s rise or fall. A share with a beta of 1 is exactly as volatile as the market. See also Alpha.
Mathematically, Beta can be represented by the following formula:
Covar(RsRm) / var(Rm)

– Synonyms: Beta


A debt security issued by such entities as corporations, governments or their agencies (particularly statutory authorities) in return for cash from lenders and investors. The issuer of a bond is effectively “borrowing” from investors and is accordingly required to pay interest to the bond owners (creditors) throughout the life of the bond. A bond holder is a creditor of the bond issuer and not a shareholder. Because bonds are an important fund raising instrument for Governments and also a method of controlling liquidity for Governments and Central Banks they are a critical underpinning of financial markets.

Bond Ratings

A system for measuring the relative credit worthiness of bond issues. Symbols are used to indicate the range from the highest investment quality (least investment risk) to the lowest investment quality (greatest risk). See also Investment Grade Bonds.

– Synonyms: Bond Ratings


Brazil, Russia, India and China. The economies of these four countries combined. Goldman Sachs report from 2003 speculated that by 2050 “BRIC”, would be wealthier than most of the current major economic powers.


An agent who handles investors’ orders to buy and sell securities, commodities, insurance policies or other assets and property. For this service (Broking), a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.

– Synonyms: Broker


A fee charged by a broker for executing and completing a transaction; alternatively an amount per transaction or a percentage of the total value of the transaction. Sometimes referred to as a brokerage commission or brokerage fee.

– Synonyms: Brokerage


One who believes the market will rise. Opposite of Bear.

– Synonyms: Bull

Bull Market

An advancing market reflecting positive business conditions and an optimistic view of future conditions. The opposite of Bear Market.

– Synonyms: Bull Market

Buy Order

An order given to a broker or a bank that authorises the purchase of a specified quantity of securities or commodities or a specified value e.g. buy 100 shares or buy shares to the value of $100.

– Synonyms: Buy Order

Buy/Sell Differential

The difference between the buying and selling price of a security. Usually referred to as the buy/sell spread. See also Spread.

– Synonyms: Buy/Sell Differential

Call Option

An option which gives its holder the right, but not the obligation, to purchase an asset at a predetermined date (maturity data) and for a predetermined price (exercise price). See also Put Option.

– Synonyms: Call Option

Capital Appreciation

The increase in the value of an asset over time.

– Synonyms: Capital Appreciation

Capital Gain/Loss

The difference between the sale price of a capital asset and its cost.

– Synonyms: Capital Gain/Loss

Capital Growth

Increase in the capital (or market) value of an investment, not to be confused with the income that may be generated by the investment from time to time. For example if a share price moves from $2.00 to $3.00 the capital gain is $1.00. This is different to the dividend that may be paid by the company which will be, for example, $0.20 per share.

– Synonyms: Capital Growth

Capital Guaranteed

Refers to an investment product, normally offered by a life insurance or fund management company, which includes some form of guaranteed return of capital. The nature of the guarantee can vary but is typically a ‘promise to pay’ by the company itself; i.e. there is no external guarantor. Interest (or other) earnings are not generally guaranteed in advance. See also Capital Protected, Capital Stable.

– Synonyms: Capital Guaranteed

Capital Protected

Refers to a type of investment portfolio or product which is managed or designed in such a way as to reduce or eliminate the risk of capital losses. This is usually achieved through the use of quantitative techniques such as protection overlays. See also Capital Stable, Capital Guaranteed and Protected Growth Fund.

– Synonyms: Capital Protected

Capital Raising

The issuing of equity or debt instruments by a company to raise funds to enable or sustain commercial growth and business expansion.

– Synonyms: Capital Raising

Capital Stable

A term usually describing unitised investment vehicles such as managed funds or superannuation/pension funds which have a high fixed interest and/or cash component. This creates a relatively stable unit price compared with balanced and growth funds, which typically have a higher exposure to share markets. A capital stable fund aims to provide a moderate level of income plus some capital growth. Capital stable funds should be distinguished from capital guaranteed funds, which offer a promised return (an actual return, usually retrospective) to the investor, and also from capital protected funds, which aim to produce a certain minimum return while still allowing a level of controlled participation in the higher gains that are typically expected from growth assets.

– Synonyms: Capital Stable


One of the asset classes that can be invested in as part of a typical balanced investment portfolio.

Cash Divided

A dividend paid on a security in cash or by cheque.

– Synonyms: Cash Divided


Certificate of Deposit. CD is a fixed income investment, with interest paid quarterly, annually or at redemption issued by commercial banks or savings and loan institutions. CD allows investor to have higher yield than normal Time Deposits and it has a maturity date. Holders of CD might not be able to recover the principal and coupon of the CD if they sell CD prior to maturity.


Contingent Deferred Sales Charge. A fee amounts to a percentage of the value of shares sold by mutual fund investors. The percentage usually diminishes over time to discourage investors from frequently trading their mutual fund shares.


Abbreviation for Chartered Financial Analyst. A widely recognised international credential for finance professionals, obtained by completing courses administered by the Association for Investment Management and Research.

– Synonyms: CFA

Closed-End Fund

A pooled fund (Collective Investment Vehicle) which no longer accepts new investors or (sometimes) new investments from existing unitholders. These are usually difficult funds for investors to exit owing to a lack of liquidity in the fund’s underlying investments e.g. unlisted property trusts. Opposite of Open-end Fund.

– Synonyms: Closed-End Fund

Closing Price

The price at which the final transaction in a traded security took place on a particular business day. Share prices are quoted daily in the financial pages of leading newspapers and show opening, high, low and last sale (closing) prices, plus net change from the previous day. Not applicable to managed funds where the unit price is a function of the funds valuation which occurs periodically (daily, monthly, annually, etc)

– Synonyms: Closing Price

Co-mingled Fund

The collective (total) investment of the assets of a number of small funds, sometimes through a master fund or funds of funds arrangement that enables more efficient and diversified investment strategies and economics of scale.

– Synonyms: Co-mingled Fund

Commercial Property

Property intended for use and/or occupancy by retail and wholesale businesses; e.g. stores, office buildings, hotels, warehouses and service establishments.

– Synonyms: Commercial Property


The basic fee charged by a broker or financial planner for purchasing or selling securities, or property, as an agent. This fee can be generally negotiated. Also known as brokerage.


An item that can be traded and generally be further processed and sold; examples include industrial (metals), agricultural (wool, wheat, sugar, etc) and bulk (coal, iron ore) goods.

– Synonyms: Commodity


Conforming or adhering to Government legislation and/or regulation or to industry best practice agreed through industry associations or similar bodies. Usually via specific management functions and procedures that are undertaken at regular intervals, or on an on-going basis, to ensure internal and external controls and regulations are satisfied.

– Synonyms: Compliance

Compound Interest

A method of interest calculation where, in each period, interest is calculated on both the principal and interest previously accrued. Because the results grown on an exponential basis, Henry Ford once said that compound interest was ‘the eighth wonder of the world’. See also Simple Interest.

– Synonyms: Compound Interest


The arithmetical process used to determine the final value of an investment or series of investments when compound interest is applied. This means that “interest is earned on the interest” as well as on the initial principal. Investment returns are typically compounded, so two consecutive periods of 10% returns result in a compound return of 21%. See also Annualising.

Contrarian Investor

An investor who invests against market trends, as opposed to following the prevailing consensus view.

– Synonyms: Contrarian Investor

Corporate Bond

A debt security issued by a corporation as opposed to a Government agency, into capital markets to raise funds. (See Bonds). Globally, corporate bonds have become increasingly important since the Global Finance Crisis, partly because of the low interest rate supplied by traditional government and semi-government bonds.

– Synonyms: Corporate Bond

Corporate Governance

A generic term applied to the management practices, board structures and personnel policies of companies. For investors corporate governance is important because it is normally concerned with the degree of influence which should be exerted over companies by their shareholdres in order to advance their financial interest. This normally occurs though the exercise of voting rights or proxies at the companies’ Annual General Meetings. Corporate governance is becoming an increasingly significant issue in the financial services sector (for superannuation/pension funds and managed funds).As both the number of members/investors grows and Funds Under Management (FUM) increases increased attention is focused on the proper exercise of trustees’ and managers’ fiduciary responsibilities.

– Synonyms: Corporate Governance

Cost Basis

The original price of an asset which is used in calculating any subsequent capital gains or losses on the investment.

– Synonyms: Cost Basis


An investment style which aims to anticipate, and take advantage of, expected turns in the business cycle, e.g. to sell out of shares after a prolonged period of growth in anticipation of a cyclical dip or recession.

– Synonyms: Counter-Cyclical


The customer or bank with whom a foreign exchange or OTC transaction is made. The term is also used in interest and currency swaps markets to refer to a participant in a swap exchange.

– Synonyms: Counterparty

Counterparty Risk

The risk that the other party to a contract will not fulfil the terms of the contract. Inability to adequately assess Counterparty risk played a major role in the failure of banks and other institutions to lend money during the GFC.

– Synonyms: Counterparty Risk


Abbreviation for Constant Proportion Portfolio Insurance. A risk management technique that uses dynamic hedging. ‘Constant proportion’ refers to the fact that the portfolio constantly maintains a cushion of cash that is large enough to ensure that there is no negative return up to the end of a defined protection period, even in the event of a sudden crash or negative event. This weighting towards cash and away from growth assets creates a “cushion” that will fluctuate throughout the risk cycle, depending on current interest rate levels.

Credit Risk

The risk of suffering loss due to another party defaulting on its financial obligations.

– Synonyms: Credit Risk

Credit Spread

A term used in bond markets to describe the difference between the yield (return) available on risk-free assets to that available on debt instruments that have a lesser credit quality with the same approximate maturity. The ‘spread’ refers to the additional premium (cost) to be paid by investors for the perceived extra return associated with investing in the lower credit-quality security.

– Synonyms: Credit Spread

Cross Rate

An exchange rate between two currencies, usually constructed from the individual exchange rates of the two currencies. Always measured against the United States dollar.

– Synonyms: Cross Rate

Cum Distribution

Referring a unit trust. Where the buyer, rather than the seller, is entitled to receive the next distribution of income from the trust. Opposite of Ex-Distribution.

– Synonyms: Cum Distribution

Cumulative Rate of Return

A total, compounded rate of return that general covers more than one year. If a fund earns 15% in the first year, its cumulative return is 15.45%. Its annual average compound return, by comparison, is 13.3%. It is always advisable to look at the individual annual returns which make up cumulative and compound returns to make judgements about the quality and consistency of returns.

– Synonyms: Cumulative Rate of Return

Currency Risk

Risk of incurring losses in relation to the value of overseas investments that can be potentially caused by movements in international exchange rates.

– Synonyms: Currency Risk

Current Yield

Annual interest, coupon or dividend divided by market price per asset (bond, share, unit) to determine the income return, expressed as a yield based on the current market price. See also Running Yield.

– Synonyms: Current Yield


An organisation which safeguards and maintains assets on behalf of other parties, e.g. cash, securities, on behalf of other people. Unlike a trustee, a custodian is solely responsible for holding assets on behalf of others and it does not strictly own the assets on behalf of beneficiaries (or unitholders in the case of a unit trust). As such it is not subject to the same fiduciary duties as trustees. Trustee companies often also act as custodians, as do many banks. Custodians who aggregate a series of portfolios usually managed by different investment managers, are known as Master Custodians, and their role is to provide a single overall report on the fund. By contrast, a custodian who holds assets on behalf of clients in a number of different countries is known as a Global Custodian. See also Trustee.


Possession of securities by a financial institution on behalf of others, for purposes of safekeeping. See also Custodian.

– Synonyms: Custody


A type of debt security that is backed by the general credit membership joining of the issuer rather than by a specific security, usually these are club/school fees in HK.

– Synonyms: Debenture

Debt Ratio

The extent to which a company’s total assets are financed with borrowed funds, i.e. borrowings divided by total assets. An important financial statistic because it indicates the extent to which the company is geared, which in turn impacts the risk profile of the company.

– Synonyms: Debt Ratio

Debt Security

A security representing borrowed funds that must be repaid by the issuer; e.g. bonds, certificates of deposit, debentures. If the Government issues bonds, it is borrowing funds. Purchasers of the bonds are thus lenders to the Government.

– Synonyms: Debt Security

Debt to Equity Ratio

The relationship between funds provided by creditors (via bonds and other debt securities) and funds provided by shareholders (investments); i.e. borrowings divided by shareholders’ funds.

– Synonyms: Debt to Equity Ratio

Debt-Equity Mix

In relation to investment portfolios, the proportion of cash and fixed interest assets relative to growth assets, held within the overall portfolio. For example, a growth-oriented portfolio might have a debt-equity mix of 25% debt and 75% equity, while a more conservative capital stable portfolio would have an investment mix more like 70% cash and 30% fixed interest.

– Synonyms: Debt-Equity Mix

Deferred Annuity

A type of annuity, or retirement income, which entitles holders to receive regular payments of income commencing at a future date.

– Synonyms: Deferred Annuity


An excess of expenditure over income or revenue. Opposite of Surplus.

Defined Benefit Fund

A pension fund in which the benefits to be paid to the member are defined according to a prescribed formula. The benefit is not dependent on the market and is usually expressed as a proportion of the member’s salary on retirement. For example an average of the last three years’ salary. In Defined Benefit funds the employer or sponsor of the fund that carries the risk as to the ability of the fund to meet its liabilities. See also Defined Contribution Fund, Accumulation Fund.

– Synonyms: Defined Benefit Fund

Defined Contribution Fund

A pension fund where the contributions to be paid by members is defined as a proportion of salary. In these funds, the end benefit payable to a member on retirement is the total of all defined contributions made to the fund by the member or by any other party such as an employer plus the investment earnings (capital growth and income) on those contributions. Unlike a Defined Benefit Fund, the investment risk in a Defined Contribution Fund is born by the fund members through the funds exposure to market performance. Also known as Accumulation Funds.

– Synonyms: Defined Contribution Fund


A period where prices are falling in an economy. Consumer spending, bank lending and the amount of money in circulation are reduced compared to normal times. It is the opposite of inflation and applies to more than just a temporary fall in prices. The early 1990s saw some evidence of deflation, particularly in financial asset and property prices and there is evidence that some economies are in a deflationary situation today, having not recovered from the Global Financial Crisis (GFC) in 2008.

– Synonyms: Deflation


A measure of the degree of change in one item caused by a change in another, related item. In financial markets, delta is most often used to measure the expected expansion or contraction in the price of a derivative product given a change in the value of the underlying security (the related item). E.g. call Options have positive Deltas, while Put Options have negative Deltas; in both cases the Delta typically changes as the option’s expiration date approaches.

– Synonyms: Delta


An accounting practice whereby the original cost of an asset is systematically written-down over time to reflect the fact that assets tend to lose value as they age. It’s considered to be a non-cash business expense, and can normally be offset against income for taxation purposes. Opposite of Appreciation.


A prolonged and sustained economic recession (see Recession) in which a nation’s Gross Domestic Product (GDP) is falling. It is characterised by low production and sales, a high rate of business failure, high unemployment, falling personal incomes, less personal spending or disposable income.


Securities that derive their value from another security, e.g. futures and options. Also known as Synthetics.

– Synonyms: Derivatives

Direct Property

Investments held directly in real estate, as opposed to property investments held through financial vehicles such as managed funds, e.g. Real Estate Investment Trust (REIT).

– Synonyms: Direct Property


A person elected by shareholders to be responsible for the performance and governance of a company. They are accountable to shareholders. Executive directors are normally directly involved in the day to running of the company, whereas Non-Executive Directors are not involved in the day to day operations of the company. Non-Executive Directors are elected to Boards to provide a balance of opinion and to ensure a level of independence.

– Synonyms: Director


A statement which may allow a person or corporation to avoid liability, if before, or at the time of making a statement, that person or corporation makes it clear that they accept no responsibility for the statement. In the financial services industry, Disclaimers are often found in disclosure documents; e.g. prospectuses, Product Disclosure Statements or Key Investor Documents for collective investment products stating that the Fund Manager offering the product does not guarantee the level of performance of the fund or the return of capital to investors.


a) The difference between the original offering price of a security and the price to which it may fall in the ‘after offering’ market;
b) the amount by which a security sells below its par (asset) value.

– Synonyms: Discount


The spreading of investment funds among various classes of securities, including funds, and localities in order to distribute and minimise risk. This is a fundamental law of investment based on the fact that all asset classes are unlikely to decline at the same time. For example, if investors are exiting shares they will most likely invest in other asset classes such as property or fixed income thereby forcing values in these asset classes up. In simple terms it means: ‘don’t put all your eggs in one basket’.


The specified disposal of an asset by sale.

– Synonyms: Divestment


The specified amount of a company’s after-tax earnings which it pays to shareholders. It is normally expressed as $xx per share.

Dollar Cost Averaging

An investment strategy whereby a fixed amount is invested at regular intervals in funds, shares or other securities irrespective of the price. Dollar cost averaging stabilises investment returns as additional securities or units are purchased when prices fall and less are purchased when prices increase. The investor is not trying to pick the best time to buy and sell, rather the investor is ignoring fluctuations in order to invest at an average cost over an extended period. Over the long run dollar cost averaging is likely to reduce the average price of investments as in most cases more purchases are made at low prices than at high ones.

– Synonyms: Dollar Cost Averaging

Dow Jones Index

A share price index that is made up of 30 representative industrial companies listed on the New York Stock Exchange. The United States equivalent of the Hong Kong Hang Seng Index. There are broader measures of the United States share market, notably the S & P 500 which includes 500 companies.

– Synonyms: Dow Jones Index

Due Diligence

a) The process of checking and verifying information contained in a statement to be released to the public, e.g. prospectus, prior to the registration of that statement;
b) Ensuring that sufficient analysis has been conducted before making a loan or recommending an investment to a client.

– Synonyms: Due Diligence

Efficient Portfolio/Frontier

A portfolio (or set of optimised portfolios) that provides the highest expected return for a given level of risk, or equivalently, the lowest risk for a given expected return. One who carries such a portfolio cannot further diversify to increase the expected rate of return without accepting a greater amount of risk. Similarly one cannot decrease exposure to risk without decreasing the expected return. Portfolios that fall below the “efficient frontier” are said to be sub-optimal, because they do not provide a high enough return for the level of risk carried. Portfolios that fall to the right of the “efficient frontier” are also sub-optimal, because they are exposed to too much risk given the rate of return that has been defined.

– Synonyms: Efficient Portfolio/Frontier

Emerging Markets

Financial markets in countries where the economy is still developing. This is, where industrialisation has begun and the economy has formed some links with the global economy. The financial markets in these countries are relatively immature compared to those of the world’s established industrialised economies and major financial centres, but are becoming increasingly sophisticated and integrated into the international markets. These markets provide opportunities for investors to earn potentially high returns but because these economies often lack the regulatory, structural or technological capabilities of the established markets they are riskier and subject to higher levels of volatility. Current examples would include Thailand, Mexico and Indonesia.

– Synonyms: Emerging Markets

Enhanced Cash

A portfolio management technique that is focussed on delivering returns that are consistently above the prevailing cash rate. This is achieved by taking advantage of the higher yields that are available form securities with lower liquidity and credit ratings than conventional liquid assets.

– Synonyms: Enhanced Cash


A synonym for a share investment or The interest or value which an owner has in an asset that is over and above the debt held against it. For example, a home-owner has equity in that part of the value of his or her house above the mortgage that is still owing to the lender.


Exchange-Traded Fund. ETF is open-ended fund which invests in a basket of securities or commodities to track benchmark index / commodity performance, so that investors can invest a specific market / investment portfolio rather than a single stock.

Ethical Investment

An approach to investing which takes into account social welfare considerations over and above the potential financial return of a particular investment. An ethical investment policy decision might include, for example, a decision not to invest in certain sectors (common examples are alcohol and tobacco), or to positively favour investments in others (e.g. companies which manufacture environmentally-friendly “green” products).

– Synonyms: Ethical Investment


Refers to a unit in a unit trust, which is trading such that the seller, not the buyer, is entitled to receive the next distribution of income from the trust. Opposite of Cum Distribution.

– Synonyms: Ex-Distribution


A term meaning ‘without dividend’: identifies a share price which is quoted on the basis that the seller, rather than the buyer, is entitled to the current dividend returned by the share. Opposite of Cum Dividend.

– Synonyms: Ex-Dividend

Exchange Risk

The risk that the value of an investment may be diminished by movements in the exchange rate of a foreign currency.

Exit Fee

A fee charged in relation to some pooled investments, such as managed funds, for the redemptions of units (withdrawals) from the fund by unit holders. See also Redemption Fee, Deferred entry Fee.

– Synonyms: Exit Fee


The extent to which an investment is vulnerable to changes in value because of market movements. For example, an investment in shares is exposed to the risk of declining stock market values, unless steps have been taken to protect the investment through some form of hedging strategy.

Exposure Risk

The risk associated with investments in a particular industry sector, asset class, country, company, etc. As some element of risk is inherent in all forms of investment other than cash, responsible investors, usually in conjunction with a professional adviser, will routinely assess their exposure risk.

– Synonyms: Exposure Risk

External Manager

An organisation such as an investment management company or an asset manager that is engaged to manage and invest funds on behalf of a client (e.g. a Government authority or fund).

– Synonyms: External Manager


Federal Reserve. A central bank of the United States (U.S.) government, responsible for conducting the U.S’s monetary policy, supervising and regulating banking institutions, maintaining the stability of the financial system, containing systemic risk that may arise in financial markets. The Fed also provides finance services to depository institutions, the US Government and foreign official Institutions.


A person or on organisation that is entrusted with the legal obligation and responsibility of managing, holding or investing assets in the best interests of the owner of the assets. Trustees of superannuation funds are fiduciaries for members of their funds.

– Synonyms: Fiduciary

Financial Analyst

An expert trained to advise on the risk and return characteristics of asset classes, investments and on the management of investment portfolios.

– Synonyms: Financial Analyst

Financial Asset

Any asset that can be securitised, i.e. represented by a written certificate such as a share certificate or bond that establishes a legal claim on the issuing person or organisation.

– Synonyms: Financial Asset

Financial Planning

The process of providing comprehensive advice and assistance to a client for the purpose of meeting a client’s financial needs and life goals. The process normally includes a number of pre-defined steps such as data gathering; goal setting; identification of financial status based on wealth (assets and liabilities), income, expenses; analysis of options and strategies; preparation of written recommendations, projections and documentation; implementation of the client’s decision; and periodic review and revision of the financial plan.

– Synonyms: Financial Planning

Fixed Assets

Fixed assets are among the resources owned by a company, fund, or individual, and include such items as buildings and machines. See also Assets, Current Assets.

– Synonyms: Fixed Assets

Fixed Interest

Interest income which remains constant, such as income derived from bonds, annuities and preference shares. Any debt security that has a fixed flow of income is known as a fixed interest security.

– Synonyms: Fixed Interest

Front Office

A term that refers to the main day to day business activities of a company, as opposed to the operational or ‘back office’ operations. For example, the front office of an investment bank might include the analysts, dealers and traders that deal with clients, while the back office would include the accounting, reporting and support operations. The back office primarily exists to support the activities of the front office. In financial services firms a clear demarcation between front office and back is essential and often mandatory to ensure that appropriate “Chinese Walls” exist between key functions. The most common approach is to use various forms of duty and role segregation to ensure that business activities are properly accountable and appropriately monitored and recorded. A simple example is that a person that requests a payment (say a withdrawal from a unit trust) is not the person that approves it nor pays it.

– Synonyms: Front Office

FT Index

Abbreviation for Financial Times Index, an index measuring movements in shares of 30 industrial companies listed on the London Stock Exchange.

– Synonyms: FT Index


Abbreviation for Financial Times Stock Exchange index, called FTSE 100. The United Kingdom’s equivalent of the USA’s S&P 500 index and Hong Kong Hang Seng Index. The FTSE lists the 100 largest public companies that are traded on the London Stock Exchange. Commonly referred to as the ‘Footsie’.

Fund Manager

a) The person(s) responsible for implementing a fund’s investment strategy and managing its trading activities. A fund can be managed by an individual or by a team, usually comprising analysts that research investments and provide buy and sell recommendations.
b) Fund management businesses (colloquially “fund managers”) offer pooled investment products such as managed funds and individual portfolios operated by employed fund managers . See also Investment Manager.

– Synonyms: Fund Manager


Abbreviation for foreign exchange (i.e. currency) dealing.


a) A measure of borrowing or indebtedness. The extent of borrowings as against the equity held by a person or company in an asset or investment;
b) The ability to increase exposure by investing in futures contracts without making the underlying cash available. See also Leverage.

– Synonyms: Gearing

Global Custodian

A custodian who holds assets on behalf of clients in a number of different countries or jurisdictions.

– Synonyms: Global Custodian

Growth Assets

A general term for assets such as shares and property, which provide investment returns, (comprising both capital growth and income), which outperform inflation. Growth assets compare to debt securities such as fixed interest or cash investments.

– Synonyms: Growth Assets

Growth Fund

An investment portfolio which aims to achieve a rate of after-tax return (income and capital growth) that is above average over the medium to longer term, while adopting a medium risk profile. A growth fund typically comprises of a diversified portfolio that includes equities, fixed interest, property and cash.

– Synonyms: Growth Fund

Growth Investor

One who seeks capital gain from expected further growth in company earnings. Typically, growth investors are less concerned about price/earnings ratios and other valuation measures than they are about real earnings growth.

– Synonyms: Growth Investor


a) (Noun) An investment position taken specifically to counteract the risk associated with another position; e.g. the purchase of a put option to offset potential losses from ownership of physical stock;
b) (Verb) To take up such an investment position.

Hedge Fund

An investment portfolio where a fund manager is authorised to use a number of higher risk investment strategies in order to generate a higher return. Examples include the use of derivatives, short selling and gearing (borrowing funds). Hedge funds have become particularly common in the United States.

– Synonyms: Hedge Fund


The practice of undertaking one investment activity in order to protect against loss in another, for example, selling short to nullify a previous purchase, or buying long to offset a previous short sale. While hedging can reduce potential losses, it also has the potential to reduce profits. Typical hedges include currency forwards and share and bond futures.


Hong Kong Association of Banks. Licensed banks in Hong Kong must operate with be a member of HKAB. HKAB is responsible for promoting the interests of licensed banks in Hong Kong and to make rules for the conduct of banking business, being a focal point for consultation on law reform, new legislation and regulatory matters, being a channel for government collect opinions on commercial and banking matters. HKAB is also a channel for communication amongst its members and with third parties, to promote best practice and provide informational services.


Hong Kong Stock Exchange. An operator and frontline regulator of the central securities and derivatives market place in Hong Kong. HKEx works closely with the Securities and Futures Commission (SFC) to regulate listed issuers; administers listing, trading and clearing rules; and provides services at the wholesale level to customers of the exchanges and clearing houses.


Hong Kong Monetary Authority. A government authority in Hong Kong, responsible for maintaining currency stability within the framework of the Linked Exchange Rate system, promoting the stability and integrity of the financial system, helping to maintain Hong Kong’s status as an international financial centre, and managing the Exchange Fund.


Independent Financial Advisors. A professional who offer independent advice on financial matters to their clients and recommend suitable financial products from what is available in the market place. The term was originally developed to reflect a UK regulatory position, but over the years it has been adopted in other parts of the world, such as Hong Kong.

Index Fund

A portfolio of securities whose value closely follows a nominated market index, e.g. an equity index fund may track indexes such as the S&P500 or the Hang Seng Index. Three strategies are commonly used to manage and Index Fund. These are: 1) Replication, where the fund buys and/or sells every security (in the Index) in the same proportion as the index; 2) Stratified Sampling, where a sample of stocks are selected (according to relatively simple criteria such as size, and industry grouping), in order to achieve an approximate tracking of the index while reducing administrative costs; and 3) Optimised Sampling, which uses a more sophisticated statistical methodology incorporating risk-matching to select the most appropriate sample of stocks to achieve a required level of tracking accuracy. Funds structured around Optimised Sampling are known as Optimised Index Funds. Index funds can be designed for equities (domestic or overseas), bonds, or property trusts.

– Synonyms: Index Fund

Individual Portfolio

A portfolio of investments managed on behalf of an investor be it a single organisation or an individual, compared to a pooled investment vehicle which manages a portfolio on behalf of a number, often many investors. Individual Portfolios are generally only made available by professional investment managers or private bankers to High Net Wealth clients.

– Synonyms: Individual Portfolio


The rate at which the general level of prices of goods and services in an economy are rising. Therefore it is also a measure of the rate at which purchasing power is falling. Economists measure inflation in a number of ways the most common, especially for public consumption, is to measure it by examining price changes in fixed a basket of goods and services, e.g. the Consumer Price Index. Inflation is the opposite of deflation, often considered a more dangerous circumstance for an economy. Governments are constantly trying to minimise inflationary peaks and deflationary troughs predominately through interest rate adjustments (via Central Banks) but also using appropriate tax and spending policy.

– Synonyms: Inflation

Inflation Hedge

An investment with a value that can be expected to increase in a time of inflation. Indexed bonds are considered a good inflation hedge over the long term.

– Synonyms: Inflation Hedge

Inflation Risk

The risk that changes in the “real” return on an investment will be negative because its nominal return has failed to keep up with inflation.

– Synonyms: Inflation Risk

Inflation-Indexed Bonds

Also known as inflation-linked bonds, bonds with an interest rate or maturity value which is indexed to inflation. That is, the maturity value is not fixed when the bond is issued.

– Synonyms: Inflation-Indexed Bonds

Insider Trading

Trading in securities on the basis of ‘inside’ or secret information which is not available to the public at large. This practice is illegal and usually involves multiple individuals sharing confidential information. For example, knowledge of a potential takeover allowing an individual to “buy in” knowing that the share price is likely to rise, or buying into certain companies because of inside knowledge about an impending Government report or policy decision. E.g. if someone had knowledge of an interest rate rise before it was announced by a Central Bank.

– Synonyms: Insider Trading


A contractual arrangement under which one party (the insurer) agrees to pay an amount of money to another (the policy holder) on the occurrence of a defined event, in return for the payment of a premium by the policy holder. Insurance is taken out by the policy holder as financial protection against a possible hazard, e.g. life insurance, disability insurance, health insurance.

Intangible Assets

Resources owned by a company, fund or individual that have no physical presence. Examples include various forms of intellectual property, patents and goodwill. See also Assets.

– Synonyms: Intangible Assets


The fee or charge for borrowing money. A borrower pays a lender for the use of the lenders’ money so lenders make money from interest, borrowers pay it. Interest is usually expressed as an annual percentage rate. See also Compound Interest and Simple Interest.

– Synonyms: Interest

Interest Rate

The rate of return earned on an investment, or charged by a lender, expressed in the form of a percentage per annum.

– Synonyms: Interest Rate

Interest Rate Risk

The risk born by fixed interest securities, and by borrowers with floating or variable rate loans, when interest rates fluctuate. When interest rates rise, the market value of fixed interest securities declines and vice versa.

– Synonyms: Interest Rate Risk

Interest Rate Sensitivity

The degree of movement in the price of a security (usually a bond) resulting from movements in interest rates. See also Duration.

– Synonyms: Interest Rate Sensitivity


In finance, investment is putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk. It is indispensable for project investors to identify and manage the risks related to the investment.

Investment Manager

An organisation that specialises in the investment in a portfolio of securities on behalf of individuals or organisations under the authorisation of the investor. Investment managers offer both pooled investment products and individual portfolios to a range of clients including MPF providers, insurance companies, institutions and individual investors. The term is also sometimes applied to the individuals that are employed by the investment management business to manage the portfolio.

– Synonyms: Investment Manager

Investment Mix

The weighting of assets in an investment portfolio across different asset classes (shares, bonds, property, cash, overseas investments). Also known as asset allocation.

– Synonyms: Investment Mix

Investment Philosophy

The set of principles, methodolgies or systems used by investors to govern the way investment portfolios are managed. Sometimes confused with Investment Style, which tends more to be associated with the level of risk that is carried by the portfolio.

– Synonyms: Investment Philosophy


A term used to describe insurance products, usually life insurance, whose returns are linked to the value (price) of units in the underlying assets or investments that the insurance product invests in. Investment-linked products carry the risk of changes in the market value of the underlying assets and are distinct from capital guaranteed products, the returns from which are determined (guaranteed) by the life insurance company that sponsors them. See also Market-linked.

– Synonyms: Investment-linked


A person or business whose main purpose is to invest money over the longer term with the aim of achieving a returns in order to preserve and/or improve their wealth and/or purchasing power.


Abbreviation for Initial Public Offering. The first sale of shares of a company to the public when it lists on a stock exchange.

Leading Indicators

Economic variables which are accepted as accurately indicating future trends or expectations (e.g. share prices, currency movements) as opposed to indicators which are based on retrospective or historical statistics. Opposite of Lagging Indicators.

– Synonyms: Leading Indicators


a) The ratio of a company’s debt to its equity (value of ordinary shares). Also commonly referred to as gearing.
b) The use of an asset as security for a borrowing.


a) an obligation or debt reported on a company’s balance sheet. Also dividends due to shareholders. The opposite of Assets;
b) Also commonly used to refer to ongoing obligations, e.g. a fund owing pension payments to a member.

Life Insurance Company

A financial institution with the primary business being the provision of insurance against death and disability to policy holders. These funds are invested with the company via paying regular premium.

– Synonyms: Life Insurance Company

Life Office

Cash or assets (such as securities) which can be converted into cash immediately and with minimal capital loss, e.g. short-term bank bills. See also Liquidity.

– Synonyms: Life Office


a) The maintenance of cash and reserves by an organisation. For financial institutions it refers to the ability to fund withdrawals by depositors, unitholders or clients.
b) The ability of an investment to be easily converted into cash with little or no loss of capital and minimum delay. E.g. Short-term bank bills provide high levels of liquidity compared to property assets.

Liquidity Risk

The risk carried when an investment is not be easily and quickly converted into cash with little or no loss of capital.

– Synonyms: Liquidity Risk

Long Position

Holding an asset such as a security, bond or currency with the expectation that it will rise in value. For example, if a trader is said to be long on Yen if he/she is holding that currency on the basis that it will appreciate over time. Opposite of Short Position.

– Synonyms: Long Position

Management Agreement

The terms and conditions between an investor and an investment manager to management of agreed assets. See also Mandate.

– Synonyms: Management Agreement


The agreed objectives given by an investor (usually a company, fund or trust) to an investment manager; often including a benchmark portfolio, guidelines as to maximum and minimum sector exposures, and prohibited investments. A mandate is usually set out as part of the Management Agreement between a fund manager and its client.

– Synonyms: Mandate

Market Cycle

A business cycle reflecting rises and falls in market activity as measured by an index. Market cycles generally correspond to the economic clock, with periods of heavy purchasing indicating growth, and periods of heavy selling indicating recession.

– Synonyms: Market Cycle

Market Risk

Risk that relates to the whole market and therefore cannot be avoided by diversifying investments. i.e. by holding a greater variety of securities. See also Systematic Risk.

– Synonyms: Market Risk

Market Timing

The purchase or sale of securities based on short-term price patterns and temporary market opportunities rather than solely on the judgement of underlying value. A high risk strategy that is difficult to execute successfully on a long term basis. Used by speculators seeking immediate gains.

– Synonyms: Market Timing


A term used to describe pooled investment schemes which are valued by reference to current movements in markets, rather than on funds that are capital guaranteed.

– Synonyms: Market-linked

Master Fund

An investment vehicle that enables individual investors channel money into one or more underlying investments—most commonly wholesale or retail pooled funds operated by professional investment managers. Master funds can generally be categorised into three distinct types:
a) discretionary funds, where the investor selects the underlying investment product(s) from a list drawn up by the master fund manager;
b) fund of funds, where the investor selects a general risk profile (e.g. growth, capital stable) but the master fund manager selects the underlying investments from a range of products managed by external managers;
c) feeder funds, which are similarly to fund of funds except that that the master fund manager is also the manager of the underlying investments. Master funds which are structured as prescribed interests are commonly referred to as Master Trusts.

– Synonyms: Master Fund

Member Choice

The ability of members of an ORSO or MPF to determine the proportion of funds to be allocated to various investment strategies, options, sectors or managers that are available within the fund. Typically, a fund will allow members to switch between investment options a specified number of times per year or at certain intervals.

– Synonyms: Member Choice


Abbreviation for Management Expense Ratio. A ratio expressing the management, trustee and certain other costs (expenses) of running a pooled investment fund as a proportion of the net asset value of the fund.

Merchant Bank

A financial institution that specialises in the structuring and arranging of investment transactions for companies and projects.


Abbreviation for Managed Investment Scheme. A type of investment which pools the assets of multiple investors into a single vehicle with a common investment objective and strategy. Managed Investment Schemes encompass a variety of investment products including share trusts, property trusts, cash management trusts and certain agricultural investment schemes. Sometimes also called a Collective Investment Scheme (CIS).

Money Market Fund

A unit trust or mutual fund which invests solely in money market (short-term) securities with the objective of earning interest while maintaining a unit or share price of $1.

– Synonyms: Money Market Fund


A United States corporate credit ratings agency, which also operates in Australia and internationally. See also Australian Ratings, Standard & Poors.

Morgan Stanley Capital International

See MSCI Index.

– Synonyms: Morgan Stanley Capital International


Mandatory Provident Fund. An employment-based retirement protection system in Hong Kong. Employees who are between 18 to 65 years of age, and employers (including self- employed) who are covered by the MPF System, are each required to make regular mandatory contributions calculated at 5% of the employee’s relevant income to an MPF scheme, subject to the minimum and maximum relevant income levels.


Mandatory Provident Fund Schemes Authority. A government authority in Hong Kong, responsible for regulating and supervising MPF schemes and occupational retirement schemes. They monitor the operations of the industry, enforce the law against non-compliant parties, educate the public on the MPF System and MPF investment, and develop and refine the MPF System.


Abbreviation for modern portfolio theory. The theoretical constructs that enable investment managers to classify, estimate and control the sources of risk and return. In popular usage, the term encompasses all notions of modern investment, as well as portfolio theory. The end objective is to select the best combinations assets to produce the highest returns for a given level of risk, or the least risk for a given level of return.

MSCI Indices

Abbreviation for Morgan Stanley Capital International Indices, a series of country indexes of equity prices. The MSCI World Index is one standard for comparisons of international equity performance, although there are others, including the Frank Russell and FTSE indices.

– Synonyms: MSCI Indices

Municipal Bond

The term used in the United States for a bond issued by a local government authority, to pay for essential community infrastructure projects and services. Municipal Bonds usually receive concessional taxation treatment.

– Synonyms: Municipal Bond


A form of corporate organisation under which legal ownership rests with those who have contributed funds or premiums; as opposed to a corporate structure where issued capital is held by shareholders. Many major financial institutions such as large insurance companies and friendly societies have historically been structured as “Mutuals”. Over recent years there has been a strong trend towards demutualisation (i.e. conversion to a company structure) as a means of diversifying ownership and gaining access to new capital for expansion.

Mutual Fund

An American term for collective, or pooled investments. Mutual funds are similar to unit trusts in that individual investors are entitled to an interest in a portfolio of securities, but different in the sense that they offered through a corporate legal structure rather than through a trust arrangement.

– Synonyms: Mutual Fund


Abbreviation for the US based National Association of Securities Dealers Automated Quotation system, an automated information and order-execution system that provides price quotations for actively-traded over-the-counter securities trading in the United States. Approximately 4,000 securities are included in the NASDAQ system.

Natural Resources

Products of nature that have economic value, e.g. forest, mineral deposits.

– Synonyms: Natural Resources


Abbreviation for Net Asset Value. Total assets of a company less total liabilities. A more refined measure is Net Tangible Assets, which exclude intangible assets such as patents and goodwill.

Net Asset Backing

Total shareholders’ funds in a company (i.e. total assets less total liabilities) divided by the number of shares on issue. See also Asset Backing.

– Synonyms: Net Asset Backing

Net Profit

The profit earned by a company less all operating expenses and expenses such as tax and interest on borrowings. See also Earnings Before Interest and Tax (EBIT).

– Synonyms: Net Profit


The practice of subtracting the amount owed by a party from the amount owed to that party with an agreement to transfer only the resulting difference.

– Synonyms: Netting

Nikkei Dow Index

The Japanese Share Price Index covering the top 225 shares listed on the Tokyo Stock Exchange. The newer broader market measure is the Topix.

– Synonyms: Nikkei Dow Index


An individual or company in whose name a security is registered as the owner even though the real (or beneficial) ownership is actually held by another party. Nominee companies are often used by investors that require the asset to be held by another party for administrative and/or safekeeping purposes (e.g. a CIV using a custodian) to simplify the management of their portfolio.

Non-Factor Risk

Risk in an investment which is not related to movements in commonly understood elements and therefore cannot be minimised or avoided by diversification.

– Synonyms: Non-Factor Risk


Abbreviation for Net Present Value. The current value of a stream of income discounted by a factor (usually inflation) over the period of an investment.


Abbreviation for Net Tangible Assets. Total assets of a company less total liabilities excluding intangible items like goodwill. See also Net Asset Value (NAV).

Off Market

Relating to a transaction which occurs outside (or “off”) a formal market; e.g. transactions in unlisted securities or transactions involving listed shares which were not executed on a stock exchange. Off market transactions are conducted through negotiation rather than an auction system.

– Synonyms: Off Market


The price at which a person is willing to sell. Also known as Sell, Ask or Asking Price.

Open-end Fund

A fund in which participants buy and sell at a unit or share price that is based on the appraised value of total assets held by the fund (valuation). Participants can normally leave and enter at any time and assets may be continually added to, or removed from, the fund. Opposite of Closed-end Fund.

– Synonyms: Open-end Fund

Operations Risk

The risk that is entailed within the day to day operational structure of a company; e.g. the separation of duties between front office and back office or distribution, administration and customer service. It is related to the proper segregation of responsibilities, roles and controls that exist at an operational level.

– Synonyms: Operations Risk

Optimal Portfolio

The portfolio which best meets the investor’s needs and risk and return expectations among the range of all feasible portfolios.

– Synonyms: Optimal Portfolio


A mathematical process which creates a compromise between conflicting objectives; e.g. between maximising return and minimising risk. An optimisation program or process will identify the asset mix which is likely to give the highest return for a given risk level, or alternatively, the lowest risk portfolio that can be used to achieve a desired return. See also Portfolio Optimisation.

– Synonyms: Optimisation

Ordinary Shares

Securities which represent an ownership interest in a company. If the company has also issued preference shares, both would have ownership rights. The preference shareholder is normally limited to receiving a fixed dividend, but has prior claim over dividends and, in the event of liquidation, over assets. Ordinary shareholders assume the greater risk, but generally exercise the greater control and usually gain the greater reward through dividends and capital appreciation. If the company is wound up, ordinary shareholders generally rank behind secured creditors, including debenture holders.

– Synonyms: Ordinary Shares

OTC Option

Abbreviation for Over-the-Counter Option. Any option which is not traded on a listed exchange. It is ‘tailor made’ for a client by a financial institution and can only be re-sold by negotiation.

– Synonyms: OTC Option


Achievement of a higher investment return than a benchmark or other measure against which that return is being compared. For example, an equity fund would be said to have outperformed the Hang Seng Index if the fund achieved a 5% return compared to a 3% return achieved by the Index over the same period. Opposite of Underperformance.

– Synonyms: Outperformance

P/B ratios

Price-To-Book Ratio. This ratios is used to compare a stock’s market value to its book value. P/B ratio is often used to measure enterprises with significant changes in asset values, such as banks and real estate developers, etc.


Abbreviation for Price to Earnings. The number of times by which the price of a share covers its earnings (the “multiple”). It is calculated by dividing the current price by the company’s current annual earnings per share. In and of itself, the P/E Ratio tells very little, but can be useful when comparing companies that are in the same industry, or to the market in general, or to the company’s own historical P/E Ratios. This helps in determining how much the market is currently willing to pay for a share of the company’s earnings.


A person’s investment holdings, representing several different asset classes and investment options.


An investor’s ownership of a security, (refer either long or short).

Preference Shares

A class of ownership in a corporation with a specified dividend that is to be paid before dividends are paid to common shareholders. Preference shares return a fixed dividend to the investor. Holders of Preference Shares do not usually have voting rights.

Profit Margin

Calculated by dividing annual net earnings (after taxes) by revenues and displayed as a percentage. It is used extensively to compare stocks within industries – a higher profit margin indicates a more profitable company. It can also be calculated by dividing a company’s pre-tax earnings by its revenues, when it is known as the Pre-Tax Profit Margin. As taxes can vary from year to year and between companies and industries, this may give a truer picture of a company’s underlying profitability.

Program Trading

Computerised, algorithmically based trading used primarily by institutional investors, for large volume trades, where orders from the trader’s computer system are entered directly into the market’s computer system and executed automatically.

Prospectus or Product Disclosure Document

A formal statement that discloses the terms of a public offering of a share or a managed fund. The prospectus is required to provide particular information that is about the proposed offering and the company’s financial situation that is material to and essential to a potential investor.


A formal document, signed by a shareholder, that authorises another shareholder, or commonly the company’s management, to vote the holder’s shares at the annual meeting (AGM).

Public Companies

Companies that are listed on stock exchange, thereby enabling them to be publicly owned through the purchase and sale of issued shares.


Quantitative Easing. A strategy used by a central bank to stimulate the economy. Central bank increase the money supply by purchasing government securities or other securities from the market, lowering interest rates etc.


Or Quote. The current price being offered for a particular stock listed on a stock exchange.


The difference between the high and low prices of a security during a particular trading period.


A period of general economic decline and slow economic growth. Part of the usual business cycle. Generally identified by a fall in GDP in two successive quarters.

Relative Strength

Calculated by dividing the performance of a stock’s price over a nominated period by a market index. It is used to determine a stock’s performance relative to the market and other stocks.

– Synonyms: Relative Strength

Resource Stocks

Stocks in the mining and energy sectors.

– Synonyms: Resource Stocks

Retained Earnings

The percentage of earnings that is not paid out in dividends but retained by a company to be reinvested in its core business or to pay down debt.


The percentage gain or loss for a share over a particular period. The Real Rate of Return is the annual return realised on an investment in that stock, after it has been adjusted for changes in the price due to inflation.

– Synonyms: Return

Return on Assets

Calculated by dividing a company’s annual earnings by its total assets and displayed as a percentage. It is a useful indicator of how profitable a company is relative to its total assets.

– Synonyms: Return on Assets

Return On Equity

Calculated by dividing a company’s annual income by its Book Value (or its earnings per share by book value per share) and displayed as a percentage. It is a measure of a company’s profitability.

– Synonyms: Return On Equity

Rights issue

An issue of new shares to existing shareholders. They have a right, but not an obligation, to purchase new shares issued by the corporation at a pre-set price which is usually below the current market price.


RMB Qualified Foreign Institutional Investors. RQFII is a policy initiative of the Mainland authorities which allow qualified holders of RQFII quota to raise funds in Hong Kong and allow overseas investors to use offshore renminbi deposits to invest in mainland securities markets.


Standard Deviation. SD is to measure the investment’s volatility. It is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.

Selling Short

Selling a stock that you do not own. This is done on the basis that the share price will fall in price, enabling the investor to buy it back cheaper.

– Synonyms: Selling Short

Settlement Date

A specified date or period by which payment must be made for the purchase of stocks. For example Australia specifies that payment must be made by the fifth business day after the purchase.

– Synonyms: Settlement Date


Securities and Futures Commission. An independent statutory body set up to regulate the securities and futures markets in Hong Kong. It is responsible for setting and enforcing market regulations, licensing and supervising intermediaries, supervising market operators including exchanges, clearing houses and alternative trading platforms, and helping to enhance market infrastructure. The SFC is also responsible for authorizing investment products and/or offering documents prior to their distribution to retail investors etc.


Equity in a company. Shares in public companies are traded on a stock exchange.

– Synonyms: Share


Société d’investissement à capital variable. An open-ended collective investment scheme common in Western Europe, especially Luxembourg, Switzerland, Italy, Spain, Belgium, Malta, France and Czech Republic.


State-Owned Enterprise. A business that is operated and either wholly or partially owned by a government.


The difference between the asking and bid prices of a stock or the buy and sell price of a managed fund

– Synonyms: Spread

Stamp duty

A government tax on financial transactions.

Stock Split

A proportional increase in a company’s issued shares. After the split, the market value of the shares remains the same, though the number of shares held by each shareholder is proportionately increased.

Stock Symbol

A unique symbol assigned to a security that is listed on a stock exchange. (also stock ticker).

– Synonyms: Stock Symbol


A registered dealer who buys and sells shares on a stock exchange on behalf of investors.

– Synonyms: Stockbroker

Stop Loss

An order to sell a stock when its price falls to a pre specified point in order to limit an investor’s losses.

– Synonyms: Stop Loss


When one company takes over the ownership of another by acquiring in excess of 50% of the company’s equity.

– Synonyms: Takeover

Technical Analysis

A method of evaluating securities by analysing information relating to a stock’s market activity. Most often price and volume data. Technical analysts use charts to identify trends and patterns that can suggest future activity.


A transaction involving the sale and purchase of a security.

– Synonyms: Trade

Trading Range

The spread between the highest and lowest prices of shares traded during a period of time.

– Synonyms: Trading Range


Undertakings for Collective Investment in Transferrable Securities. UCITS are collective investment schemes established and authorised pursuant to European Union (EU) law and implemented in EU member countries.


A security that entitles the holder to buy a specific amount of stock at a specified future date at a specified price.

– Synonyms: Warrant

White-label Product

An financial product, usually an investment product or a loan, that is owned, administered or managed by one organisation, but labelled or branded with the name of another organisation. This is very common in the distribution of financial products.

– Synonyms: White-label Product


The income return on an investment being the interest or dividends received from a security expressed annually as a percentage based on the investment’s cost and its current market value or its face value.

– Synonyms: Yield