Glossary

Investing & analytics terms, defined

Explore 314 plain-English definitions used across investing and asset management, from asset allocation and portfolio risk to valuation and private markets.

A

Absolute return

A strategy objective focused on positive returns rather than beating a market index.

Accumulation share class

A fund share class that reinvests income rather than paying it out.

A fund whose manager selects investments rather than simply tracking an index.

The difference between portfolio return and benchmark return.

After-tax return

Investment return remaining after applicable taxes.

Allocation effect

The part of active return that comes from over- or under-weighting sectors or regions.

Return above what the benchmark and your market exposure (beta) would predict.

Alternative investment

An investment outside traditional listed equities, bonds, and cash.

The tendency to rely too heavily on an initial reference point.

Annualized return

A multi-period return expressed as an equivalent yearly compound rate.

Anti-money laundering

Controls intended to detect and prevent the movement of illicit funds.

An increase in an asset's or currency's value.

The lowest price a seller currently accepts for an asset.

Asset allocation

How a portfolio is divided among asset classes such as equities, bonds, cash, and alternatives.

A group of investments with similar economic characteristics and market behavior.

Assets under management

The market value of assets managed by a firm or investment vehicle.

Authorized participant

A financial institution permitted to create and redeem ETF shares directly with the fund.

B

The reference currency used to value a portfolio or quote a currency pair.

A sustained period of generally falling asset prices, often defined as a decline of at least 20%.

Behavioral finance

The study of how psychology affects financial decisions and markets.

A reference index or portfolio your performance is measured against.

The obligation to seek the most favorable reasonably available trading outcome.

How much a portfolio moves for a given move in its benchmark.

The highest price a buyer currently offers for an asset.

The difference between the best available buying and selling prices.

A debt security through which an issuer borrows money from investors.

Book value per share

Common shareholders' equity divided by common shares outstanding.

Brinson attribution

Explains your return versus a benchmark by splitting it into allocation and selection.

A sustained period of generally rising asset prices.

C

An option giving its owner the right to buy an underlying asset.

Annualized return divided by maximum drawdown.

Capital appreciation

Growth in an investment's market value over time.

A request for investors to contribute part of their committed capital.

Capital expenditure

Cash spent to acquire or improve long-term physical and intangible assets.

Profit realized or unrealized when an asset's value exceeds its cost.

A decline or realized shortfall relative to an asset's cost.

Capital preservation

An objective focused on limiting permanent loss of invested capital.

Carbon footprint

The greenhouse-gas emissions associated with a company, activity, or portfolio.

Carbon intensity

Greenhouse-gas emissions normalized by revenue, output, or investment value.

Carried interest

A share of private-fund profits allocated to the manager under agreed terms.

Borrowing in a lower-yielding currency to invest in a higher-yielding one.

Cash equivalent

A highly liquid, short-maturity investment with limited price risk.

Closed-end fund

A pooled vehicle with a fixed share count that usually trades on an exchange.

Physical assets valued partly for scarcity, history, or cultural demand.

Committed capital

The amount an investor agrees to provide to a private fund.

A basic physical good, such as oil, gold, or wheat, that can be traded.

Equity that generally carries voting rights and a residual claim on company value.

Comparable-company analysis

Valuing a company using multiples observed for similar businesses.

Compound annual growth rate

The constant annual rate that links a beginning value to an ending value.

The degree to which a portfolio depends on a small number of holdings or exposures.

Concentration risk

The added vulnerability created by large exposure to one holding, sector, or theme.

Conditional value at risk

The average loss expected when losses exceed the value-at-risk threshold.

Confirmation bias

The tendency to favor information that supports an existing belief.

A measure of how a bond's duration changes as yields change.

Core-satellite investing

Combining a diversified core holding with smaller specialist or active positions.

Debt issued by a company to finance its activities.

The tax-adjusted acquisition cost used to calculate gain or loss.

Counterparty risk

The risk that the other party to a financial contract does not perform.

The interest payment made by a bond issuer to its investors.

Creation and redemption

The process through which authorized participants add or remove ETF shares.

The risk that a borrower fails to meet interest or principal obligations.

The yield difference between a credit-risky bond and a comparable lower-risk benchmark.

Cumulative return

The total percentage gain or loss over an entire measurement period.

A position intended to reduce the effect of exchange-rate changes.

Currency overlay

A separately managed program for hedging or actively managing portfolio currency exposure.

Two currencies quoted together to show their relative value.

The possibility that exchange-rate changes affect an investment's domestic-currency return.

Currency-hedged return

A return after reducing or offsetting exposure to exchange-rate movements.

Current assets divided by current liabilities.

A bond's annual coupon income divided by its current market price.

An institution that safeguards assets and supports settlement and recordkeeping.

D

Debt-to-equity ratio

Total debt divided by shareholders' equity.

A sustained decline in the general price level.

An option's expected price change for a one-unit change in the underlying asset.

A decrease in an asset's or currency's value.

A contract whose value depends on an underlying asset, rate, or index.

Developed markets

Countries with mature economies, capital markets, and institutional frameworks.

An electronically recorded asset, including cryptocurrencies and tokenized securities.

The required return used to convert future cash flows into present value.

Discounted cash flow

A valuation method that discounts forecast cash flows to present value.

Disposition effect

The tendency to sell winners too early and retain losers too long.

Distressed debt

Debt of issuers experiencing financial difficulty or restructuring.

Distributed to paid-in capital

Cumulative distributions divided by contributed capital.

Cash or securities returned by a private fund to its investors.

Distribution share class

A fund share class that pays income to investors.

Distribution yield

Recent fund distributions annualized and divided by the current market price or NAV.

Diversification

Spreading exposure across investments whose returns do not move exactly together.

A distribution of company profits or capital to shareholders.

Dividend payout ratio

The proportion of earnings distributed to shareholders as dividends.

Annual dividends per share divided by the current share price.

Dollar-cost averaging

Investing a fixed amount at regular intervals regardless of market price.

Double materiality

Considering both sustainability effects on enterprise value and an entity's effects on society and nature.

The likelihood or magnitude of returns falling below a chosen threshold.

Drawdown strategy

A plan for funding spending through portfolio income and asset sales.

A structured investigation of an investment, manager, or counterparty before commitment.

A measure of a bond's price sensitivity to changes in interest rates.

E

Earnings per share

Net earnings attributable to common shareholders divided by diluted shares.

Earnings per share divided by share price, the inverse of the price-to-earnings ratio.

Earnings before interest, taxes, depreciation, and amortization.

The recurring movement of economic activity through expansion and contraction.

A durable competitive advantage that can protect a company's profits.

Efficient frontier

The set of portfolios offering the highest expected return for each level of risk.

Emerging markets

Economies and capital markets that are developing and may offer higher growth and risk.

Structured dialogue with an issuer intended to improve disclosure, conduct, or performance.

Enterprise value

Equity value plus net debt and other claims used to value the whole business.

Equal weighting

Assigning the same portfolio weight to every constituent.

An ownership interest in a company, commonly represented by shares of stock.

ESG integration

Systematically incorporating material ESG information into financial analysis.

Considering environmental, social, and governance factors in investment decisions.

Enterprise value divided by earnings before interest, tax, depreciation, and amortization.

Return above a benchmark, target, or risk-free rate.

The price of one currency expressed in units of another.

Exchange-traded fund

A pooled portfolio whose shares trade on an exchange throughout the day.

Exclusionary screening

Avoiding issuers or activities that fail specified investment criteria.

A fund's annual operating expenses expressed as a percentage of average assets.

Expiration date

The date on which a derivative contract expires.

F

Factor investing

Targeting systematic return drivers such as value, momentum, quality, size, or low volatility.

A legal or ethical obligation to act in a beneficiary's best interests.

A defined future outcome that an investment plan is intended to fund.

Government decisions about taxation, spending, and borrowing.

Debt investments that typically pay interest and return principal at maturity.

Fear of missing out, which can prompt decisions driven by others' apparent gains.

Foreign exchange

The market and process for converting one currency into another.

Forward contract

A customized agreement to transact an asset at a future date and price.

Forward price-to-earnings ratio

Share price divided by forecast earnings per share.

An exchange rate agreed today for a currency transaction on a future date.

Changing a decision because identical information is presented in a different way.

Operating cash flow remaining after capital expenditure.

Shares available for public trading after excluding closely held stakes.

Free-cash-flow yield

Free cash flow divided by equity market value.

Frontier markets

Smaller or less accessible markets at an earlier development stage than emerging markets.

Fund administrator

A service provider responsible for fund accounting, valuation, and operational records.

A portfolio that invests primarily in other investment funds.

Futures contract

A standardized agreement to transact an asset at a future date and price.

G

The rate at which an option's delta changes as the underlying price changes.

General partner

The party that manages a private investment partnership.

A planned change in asset allocation as an investor approaches a goal date.

Global macro strategy

A strategy based on broad economic and political views across global markets.

Government bond

Debt issued by a national government.

A bond whose proceeds finance eligible environmental projects.

Misleading claims that overstate an investment's environmental or sustainability characteristics.

Gross domestic product

The total value of final goods and services produced within an economy.

Gross profit divided by revenue.

Revenue minus the direct cost of producing goods or services.

Growth investing

Investing in companies expected to expand earnings or revenue faster than the market.

H

A privately offered pooled fund that may use flexible strategies, leverage, and short selling.

Following the actions of a larger group rather than relying on independent analysis.

High-water mark

The highest prior fund value above which performance fees may become payable again.

High-yield bond

A below-investment-grade bond that generally offers higher income and default risk.

Viewing past outcomes as having been more predictable than they were.

Holding-period return

The total return earned between the purchase and sale or valuation dates.

Holding an outsized share of investments from one's domestic market.

A minimum return that must be achieved before performance fees apply.

I

Illiquidity premium

Additional expected return demanded for holding assets that are difficult to sell.

Impact investing

Investing to generate measurable social or environmental benefits alongside financial returns.

Implied volatility

The volatility level embedded in an option's market price.

Income investing

Prioritizing investments that generate dividends, interest, or other regular distributions.

A fund designed to replicate the holdings and performance of a specified index.

A sustained rise in the general price level of goods and services.

The risk that rising prices reduce the real purchasing power of returns.

Information ratio

Active return earned per unit of active risk (tracking error).

Essential physical assets such as utilities, transport networks, and communications systems.

The price paid to borrow money or earned for lending it.

Interest-rate risk

The sensitivity of an investment's value to changes in interest rates.

Internal rate of return

The discount rate that makes the net present value of cash flows equal zero.

Internal rate of return in private markets

A cash-flow-weighted annualized return used to assess private investments.

Intrinsic value

An estimate of an asset's economic worth based on fundamentals.

Investment horizon

The expected length of time before invested money is needed.

Investment manager

A person or organization responsible for managing investments for clients or funds.

Investment mandate

The objectives, constraints, and permitted investments governing a portfolio.

Investment policy statement

A document recording an investor's goals, risk limits, horizon, and portfolio rules.

Investment-grade bond

A bond assigned a relatively high credit rating by a recognized rating agency.

J

The pattern in which private-fund returns are often negative early and improve later.

K

Know your customer

The process of verifying a client's identity and relevant background.

L

Large-cap stock

Shares of a company with a relatively large market capitalization.

The use of borrowing or derivatives to increase investment exposure.

Liability-driven investing

Managing assets with explicit reference to the timing and value of future obligations.

An instruction to trade only at a specified price or better.

Limited partner

An investor whose liability and management role in a partnership are limited.

The amount and timing of cash an investor expects to require.

The risk that an asset cannot be traded quickly without a material price concession.

Local-currency return

An investment return measured in the asset's own currency.

Long-short strategy

A strategy combining positions expected to rise with short positions expected to fall.

The tendency to feel losses more strongly than equivalent gains.

Lump-sum investing

Investing available capital at one time rather than gradually.

M

Managed futures

Systematic or discretionary trading strategies using futures and forward markets.

A recurring charge paid for professional investment management.

Capital posted to support a leveraged investment or trading position.

Margin of safety

The discount between an investment's price and estimated intrinsic value.

Market capitalization

A company's share price multiplied by its shares outstanding.

Market correction

A notable market decline, commonly understood as at least 10% from a recent peak.

Market liquidity

The ability to trade quickly, in size, with limited price impact.

An instruction to trade immediately at the best available price.

The possibility of loss caused by broad movements in market prices.

Market-cap weighting

Weighting securities according to their total market value.

Market-neutral strategy

A strategy seeking limited overall market exposure while profiting from relative price differences.

Maximum drawdown

The largest peak-to-trough fall in value over a period.

Mental accounting

Treating money differently according to arbitrary labels or separate mental accounts.

Merger arbitrage

Trading securities involved in announced corporate acquisitions.

Shares of a company with a medium-sized market capitalization.

Modified duration

The approximate percentage price change for a one-percentage-point change in yield.

Monetary policy

Central-bank actions affecting interest rates, money, and credit conditions.

Money market fund

A fund investing in high-quality, short-term debt and cash instruments.

Money-weighted return (XIRR)

Your personal return, accounting for the size and timing of cash flows.

Monte Carlo simulation

Projecting a range of future outcomes by simulating many possible return paths.

Multiple on invested capital

Total value received and remaining divided by invested capital.

Debt issued by a state, city, or other local public authority.

A pooled investment vehicle that issues and redeems shares at net asset value.

N

Net asset value

A fund's assets minus liabilities, usually expressed on a per-share basis.

Profit remaining after all expenses, interest, and taxes.

Net income divided by revenue.

Investment return before adjusting for inflation.

O

A fund that creates and redeems shares in response to investor demand.

Operating income

Profit from core operations after operating expenses but before interest and tax.

Operating margin

Operating income divided by revenue.

A contract granting the right, but not the obligation, to transact at specified terms.

The price paid by an option buyer to the option seller.

Overconfidence bias

The tendency to overestimate one's knowledge, skill, or forecast accuracy.

P

Paid-in capital

Capital that investors have actually contributed to a private fund.

Performance fee

Compensation linked to a fund's investment performance.

A central bank's key interest rate used to influence financial conditions.

Portfolio construction

The process of selecting investments and weights to meet defined return, risk, and liquidity goals.

Portfolio manager

The professional accountable for investment decisions within a portfolio.

Positive screening

Favoring issuers with comparatively strong sustainability characteristics.

Preferred stock

Equity with priority over common stock for dividends and liquidation proceeds.

Premium or discount to NAV

The percentage by which a fund's market price differs from its net asset value.

The change in an asset's price, excluding income and distributions.

Price-to-book ratio

Market value of equity divided by book value of equity.

Price-to-earnings ratio

Share price divided by earnings per share.

Price-to-sales ratio

Market capitalization divided by company revenue.

Loans and other debt financed outside public bond markets.

Ownership capital invested in companies not traded on public exchanges.

Voting shareholder resolutions and director elections, directly or through an authorized party.

Purchasing power parity

A theory linking exchange rates to relative price levels across countries.

An option giving its owner the right to sell an underlying asset.

Q

Qualified dividend

A dividend meeting jurisdiction-specific conditions for preferential tax treatment.

R

Land and buildings held directly or through investment vehicles.

Real estate investment trust

A company or trust that owns or finances income-producing real estate.

Investment return after accounting for inflation.

A profit recognized when an investment is sold or otherwise disposed of.

Trading a portfolio back toward its target asset weights.

The tendency to give recent events excessive weight when forming expectations.

A broad and meaningful decline in economic activity.

Relative return

Performance measured in comparison with another investment or benchmark.

Reserve currency

A currency widely held by governments and institutions for reserves and transactions.

Residual value to paid-in capital

Remaining fund value divided by contributed capital.

Responsible investing

Integrating stewardship and sustainability factors into investment practice.

Return on assets

Net income relative to average total assets.

Return on equity

Net income relative to average shareholders' equity.

Return on invested capital

After-tax operating profit relative to capital invested in the business.

Income generated from a company's ordinary business activities before expenses.

Allocating a portfolio's permitted risk across strategies, assets, or managers.

An investor's financial ability to withstand losses without compromising objectives.

A portfolio approach that balances risk contributions rather than invested capital.

An investor's willingness and emotional capacity to accept investment losses.

The theoretical return on an investment with negligible default risk.

S

Safe withdrawal rate

An estimated sustainable rate of portfolio withdrawals over a specified horizon.

Secondary market

A market where existing private-fund interests or private securities are bought and sold.

Selection effect

The part of active return that comes from the specific securities picked within each bucket.

Sequence-of-returns risk

The risk that poor returns early in a withdrawal period cause lasting portfolio damage.

The exchange of securities and cash that completes a trade.

A company's repurchase of its own outstanding shares.

A version of a fund with distinct fees, currency, distribution, or investor eligibility terms.

Return earned per unit of total risk, above the risk-free rate.

Selling a borrowed asset in anticipation of buying it back at a lower price.

The difference between an expected trade price and the executed price.

Small-cap stock

Shares of a company with a relatively small market capitalization.

An economic slowdown that reduces inflation without causing a severe recession.

Excess return per unit of downside deviation.

The current exchange rate for near-immediate currency delivery.

Status quo bias

Preferring the current position even when alternatives may be better.

Using investor rights and influence to protect and enhance long-term value.

An increase in share count that proportionally reduces the price per share.

An order activated when an asset reaches a specified trigger price.

Strategic asset allocation

A long-term target mix designed around an investor's objectives, horizon, and risk tolerance.

Estimating portfolio outcomes under severe but plausible market conditions.

The price at which an option holder may buy or sell the underlying asset.

Survivorship bias

Drawing conclusions from surviving investments while ignoring those that disappeared.

Sustainable investing

Investing with financial objectives and explicit environmental or social considerations.

A contract in which two parties exchange specified cash-flow streams.

Systematic risk

Market-wide risk that diversification cannot fully remove.

T

Tactical asset allocation

Shorter-term departures from strategic weights intended to benefit from market opportunities.

The risk of rare but severe outcomes at the edge of a return distribution.

Target-date fund

A diversified fund whose asset mix becomes more conservative toward a target year.

Tax-deferred account

An account in which tax is generally postponed until funds are withdrawn.

Tax-loss harvesting

Selling investments at a loss to offset taxable gains, subject to local rules.

Taxable account

An investment account without special tax deferral or exemption.

Extra yield investors may require for holding longer-maturity bonds.

The estimated value of cash flows beyond an explicit forecast period.

The estimated loss in an option's value from the passage of time.

Time-weighted return (TWR)

Return that strips out the effect of deposits and withdrawals.

Price appreciation plus income and distributions over a period.

Total value to paid-in capital

Distributions plus residual value divided by contributed capital.

How closely a portfolio follows its benchmark, as return volatility of the difference.

The number or value of securities traded during a period.

Transaction cost

A direct or indirect cost incurred when buying or selling an investment.

Excess return per unit of systematic risk measured by beta.

The proportion of a portfolio's holdings bought or sold during a period.

U

A pooled investment structured as a trust with units owned by investors.

Unrealized gain

An increase in value on an investment that has not been sold.

Unsystematic risk

Company- or asset-specific risk that diversification can reduce.

V

An estimate of the loss threshold that should not be exceeded at a stated confidence level and horizon.

Value investing

Investing in securities considered inexpensive relative to fundamentals or intrinsic value.

An option's sensitivity to a change in implied volatility.

Venture capital

Equity financing supplied to young companies with high growth potential.

The year a private fund begins investing or first draws capital.

How much returns fluctuate, usually the annualised standard deviation.

W

A sale and near-term repurchase that may restrict recognition of a tax loss.

Wealth management

Coordinated investment, planning, tax, and estate services for individuals or families.

Weighted average cost of capital

A company's blended required return across debt and equity financing.

Withholding tax

Tax deducted at source from income such as dividends or interest.

Y

A line showing yields across maturities for comparable debt securities.

Yield to maturity

The annualized return implied by holding a bond to maturity with payments made as scheduled.

Z

Zero-coupon bond

A bond sold below face value that pays no periodic coupon.