A-Z Glossary
EAFE Index

Abbreviation for Europe, Australia and Far East Index, a stock market index, often used as an ex-United States world equity benchmark by United States investors.

Early retirement

When a member starts to take his/her pension before the normal retirement date of the scheme. There is a limit on how much of a member’s earnings may be used to work out the limits on contributions and benefits in an approved pension scheme. This limits the amount that a high earner can put into a pension scheme and still get tax relief.

Earnings per share (EPS)

A measure of a company’s performance, calculated by dividing the company’s net operating profit after tax, divided by the number of shares in issue.

Earnings yield

A ratio calculated by dividing a company’s earnings per share by its current share price. The reciprocal of the price earnings ratio.

Efficient Frontier Modelling

An investment portfolio is said to reside on the 'efficient frontier' if it is expected to produce returns greater than other portfolios (i.e. with different asset mixes) of the same or lesser risk, where risk is defined as the standard deviation of the returns. In order to calculate an efficient frontier, future investment returns and their standard deviation need to be known. These are, of course, unknown and need to be estimated from past market data. However, there is no guarantee that the past will be a suitable guide to the future and so efficient frontiers cannot be determined with certainty.

Electronic Trade Confirmation System (ETC)

The generic term for any message or interface service that enables investors, brokers and custodians to electronically exchange confirmations that trade settlements have occurred.

Emerging markets

Financial markets in countries with developing economies, where industrialisation has commenced and the economy has linkages with the global economy. The financial markets in these countries are immature compared to those of the world’s major financial centres, but are becoming increasingly sophisticated and integrated into the international markets. These markets provide potentially high returns but are subject to high risk and volatility.

Endowment assurance

A life assurance policy that pays out a lump sum after a specific period of time or on death of the policyholder. They can be used as a vehicle for saving or as a way to repay a mortgage. It is important to remember that an endowment is a long-term commitment. A customer who surrenders their policy early may not get back the amount of money they have invested. Note: the definition does not apply to either an Endowment or a Pure Endowment.


An ethical investment fund may follow an 'engagement policy' by using the influence of shareholders to challenge companies about their environmental or social performance. This means entering into a dialogue with companies to improve their environmental or social policies and to promote industry 'best practice'.


Another name for shares held in a company.


The value of an asset (e.g. a property) less any money owing on it (e.g. loans/mortgages).

Equity investment funds

An investment fund that invests in shares in UK or overseas companies. international equity investment funds invest either within developed economies or within emerging markets.

Equity risk premium

The difference between the rate of return available from risk-free assets (such as government bonds) and that available from assuming the risk inherent in more volatile investment such as shares.


When a pension in payment is automatically increased at regular intervals by a fixed percentage rate or the increase of a specific index such as the Retail Price Index (RPI).

Ethical investment

An investment approach which takes into account considerations other than solely the financial return potential of particular investments. An ethical portfolio might, for example, avoid investing in alcohol or tobacco.

Ex gratia

A payment made that is not legally necessary under the terms of a contract. It is usually made because of a moral obligation and no legal liability is admitted by the payer when making an ex gratia payment.

Exchange rate risk

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


A term meaning 'without dividend' which denotes a share price which is quoted on the basis that the seller, not the buyer, is entitled to the current dividend on the share. (As opposed to cum dividend).


Individual(s) or company(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate.

External audit

The risk associated with investments in a particular industry sector, country, company etc. Assessments of exposure risk are routinely conducted by responsible investors, as some risk element is inherent in all forms of investment other than cash.

External manager

An organisation (e.g. an investment management company) engaged to manage and invest funds on behalf of a client.


This is the extension of a company's intranet, to allow selected customers, suppliers and mobile workers to access the company's private data and applications via the internet. It is usually in addition to, the company's public web site which is accessible to everyone.