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Investment Terminology
At Chetwood Investment Management we put the client at the centre of our service proposition and a key element of this is providing regular communication to our clients keeping them informed about portfolio performance and our market outlook via weekly and quarterly reporting. We recognise that investment terminology can sometimes be complex or jargon heavy. One step we have taken to empower our clients understanding of their investment products and the wider market is by creating a definitions page which we hope will make it much easier to follow our regular client reporting. Action to empower client understanding forms part of our duty under the FCA Consumer Duty Principal.
We can provide printed copies of our Investment Terminology page upon request from your Financial Adviser.
Active Management
Funds that hold specific stocks depending on the views of the investment team that manage the fund. The team will use their judgement and research process to pick certain assets that they believe will outperform. Active funds tend to be judged against a benchmark and aim to deliver a higher return than the benchmark after fees. As a result of the costs of running this team, active funds tend to be more expensive than passive strategies.
Asset Management
​The practice of increasing total wealth over time by acquiring, maintaining and trading investments that have the potential to grow in value.
Annual Management Charge
(AMC)
A charge by the portfolio manager for managing the portfolio.
Benchmark
​A benchmark is used to compare the performance of a strategy against peers or a particular market.
Bond
Companies and governments issue bonds to raise money. The company or government issues debt that investors can purchase for a set level of income. The company / government gets the capital it requires, the investor gets an income. Depending on how attractive the income stream is, the bond can fluctuate in value depending on demand. This income is called a coupon. Capital returns fluctuate depending on market conditions and the price you pay for the bond. Bonds can be referred to as fixed income investments as the income payments are fixed at outset.
Capital Gains Tax (CGT)
CGT is paid on any gains above your personal allowance that you make on your investments, when they are outside of standard tax wrappers like ISA’s and pensions. This is why your financial adviser will often encourage you to utilise your full ISA and pension allowances.
Diversification
The process of mitigating risk by spreading your investments across different assets to avoid having too many eggs in one basket.
Equity
​Equity is an investment security that represents ownership in a company. Equities tend to have a higher risk reward profile and are therefore often regarded as longer term investment strategies.
General Investment Account (GIA)
Once an investor has used all of their annual Individual Savings Account allowance, they can then use a GIA. There are no limits on the amount a person invests into their GIA, however they are subject to Capital Gains Tax, when gains are crystallised above your annual allowance.
Passive Fund
Also known as tracker funds, their aim is to replicate the performance of a specific index or otherwise predefined group of assets. Passive funds are usually cheaper than active funds as there is no research and management costs involved. They are usually traded once a day, whereas Exchange Traded Funds are traded intraday.
Dividend
A dividend is an income payment made by a company to the shareholders as it looks to distribute its profits. A dividend yield is the percentage calculated by dividing the annual dividend payment by the company’s share price. Dividends can be paid annually, half yearly, quarterly, or monthly.
Exchange Traded Fund (ETF)
ETFs are index tracking funds which are traded on an exchange. These investment vehicles simply track the return of a chosen index / basket of stocks, and as a result they do not have an extra layer of management and often have a low cost of ownership.
Ongoing Charges Figure (OCF)
You will find OCF’s stated on fund/portfolio factsheets and the purpose is to outline the cost of investing in a fund/portfolio. The OCF is expressed as a percentage and includes the Annual Management Charge (AMC), along with administration, regulatory and custody charges. The OCF does not include all charges a client may incur when investing in a fund/portfolio, as any applicable performance fees or platform fees are not included in this figure.
Volatility
Volatility is the measure of how much the price of an investment security has gone up or down over a period of time. Typically the higher the volatility of an investment security the higher the reward potential, although there is higher downside risk as well.
Credit Spread
A bond credit spread represents the additional interest rate that borrowers must offer on a bond compared to a risk-free bond. It measures the perceived riskiness of a bond. A higher credit spread indicates a higher risk associated with the bond. Investors demand a higher interest rate as compensation for taking on that extra risk. The credit spread helps investors assess the bond's level of risk and potential return.
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