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Glossary

ABI

These are a series of sector groupings defined by the Association of British Insurers for all UK life company funds that it covers to ensure that all funds are grouped with similar funds for comparison purposes.

Accumulation date

The date when income will be paid by a unit trust. This income is reinvested back into the unit trust increasing the value of the units instead of being paid out to the investor.

Accumulation units

These units reinvest the income a unit trust earns, instead of paying it out to investors as an income. Unit holders or policy holders get the benefit through the increased value of the fund.

ACD (Authorised Corporate Director)

An Authorised Corporate Director (ACD) is responsible for operating the ICVC company in accordance with the regulations and the ICVC’s instrument of incorporation.

Active management

A traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of the best opportunities in the stock market.

Active market

A market in which the volume of securities traded is higher than normal.

Active position

The difference between the actual level of investment made in a particular asset class and the benchmark level of investment in that asset class.

Actuary

A professional person qualified to make calculations and valuations in respect of pension funds, insurance funds or other forms of investment. Actuaries apply mathematical, statistical, economic and financial analysis to a particular emphasis on longer-term financial assessment of risk or uncertain financial outcomes.

Aggressive portfolio

A portfolio which is designed to provide above-average returns by taking above-average risk. Typically, such portfolios have a relatively high exposure to equity investments.

Allocation rate

The percentage of the customer's money that is actually invested in the policy after any initial charges have been taken out.

Alpha (a)

Alpha (a) is used to calculate how much a fund manager has outperformed, producing positive alpha, or underperformed, producing negative alpha, taking into account the portfolio’s sensitivity to the market.

Alternative energy companies

Companies working in and supporting the renewable energy sector.

Alternative Investment Market (AIM)

A list of young and growing companies that do not meet the requirements of the London Stock Exchange listing.

AMC (Annual Management Charge)

A charge made each year by managers of unit trusts, OEICs or investment trusts to cover the expenses associated with running the fund. Although it is expressed in annual percentage figures it is usually split into 12 monthly amounts and taken from the fund monthly.

American option

An option which may be exercised any time between its initiation and expiration dates (inclusive).

Annual compound return

The annual rate of return earned on an investment which includes any growth, for example: Investment of £100 grows by 5% in the first year; You then have £105 at the start of year 2, this then grows by a further 3%, so at the beginning of year 3 the investment is worth £108.15. This is the effect of compounding. So a growth of £8.15 on £100 over 2 years is actually an annual compound return of 4% per year, not 8.15% divided by 2.

Annualising

The expression of a rate of return over periods other than a year, but converted to annual terms.

Annuity

An arrangement under which periodic payments are made to a person in return for the investment of a lump sum, usually for the purpose of providing retirement income.

Annuity rate

The percentage rate used to calculate the amount of income payable, following investment of a lump sum in an annuity.

Arbitrage

Taking advantage of countervailing prices in different markets – e.g. the purchase of an asset for a low price in one market and its sale for a higher price in another.

 

Asset allocation

The percentage split of an investment portfolio among different asset classes (shares, bonds, property, cash etc).

Asset classes

The different types of assets available to investors. For example, equities, cash, fixed interest or property.

Asset management

Also known as investment management, asset management is the professional management of various securities/assets such as shares, bonds, real estate etc to meet the goals of the investor.

Assets

Items that are owned by an individual such as property and investments etc. Money in a bank or building society account is known as liquid assets.

Assignment

The transfer of ownership to another party.

At a premium

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

Attribution analysis

The process by which the return on an investment portfolio is attributed to its manager’s investment decisions, typically, stock selection, asset allocation and market timing.

Authorised Corporate Director

An Authorised Corporate Director (ACD) is responsible for operating the ICVC company in accordance with the regulations and the ICVC’s instrument of incorporation.

AVC

Additional Voluntary Contributions – Non compulsory payments made by a member of an employer’s pension scheme who wants to boost their retirement benefits.

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