Glossary of terms

Active investing

An investment manager builds a portfolio which attempts to outperform the returns of a specific index by strategically buying and selling stocks and other assets.

Agent’s custody charges

Charges to cover the cost of keeping your assets in custody. These can be our own costs, as your ‘agent’. However, if we can’t hold your assets directly, for example in a foreign market, we will need to use a separate agent with their own fees and charges.

AIM listed equities

Shares of smaller, often growth-oriented companies trading on the Alternative Investment Market (AIM) in the London  Stock Exchange.

Alternatives

An alternative investment is a financial asset that does not fall within a conventional investment category, such as equities or fixed income bonds. These can include real estate, private equity, commodities or even art and antiques. As alternative investments tend to be more complex and less regulated, they also come with a higher degree of risk than conventional stocks.

Ancillary services

Costs that relate to Canaccord Genuity Wealth Limited (CGWL) Annual management fee, trade costs and stamp duty which may also be subject to VAT.

Annual management fee

The fee charged by CGWL for managing your investments, calculated as a percentage of Assets Under Management 'AUM'. The annual management fee may attract VAT but that can vary depending on the service received.

Asset-backed securities

This is a type of financial investment that is collateralised by an underlying pool of assets – usually ones that generate a cash flow from debt, such as mortgages, leases or credit card balances. It takes the form of a bond or note, paying income at a fixed rate for a set amount of time, until maturity.

Asset

An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Assets are reported on a company's balance sheet. They're classified as current, fixed, financial, and intangible.

Asset allocation

Asset allocation is the term used to describe how investors divide their portfolio across different general asset classes (e.g. fixed income, equities, alternatives and cash).

Asset class

An asset class is a group of investments  that exhibit similar characteristics and are subject to the same laws and regulations. Equities (e.g. stocks), fixed income (e.g. bonds), cash and cash equivalents, real estate, commodities and currencies are common examples of asset classes.

Asset valuation

Asset valuation is the process of determining the current value of a company's assets, such as stocks, buildings, equipment, brands, goodwill, etc. This process often happens as part of a wider business valuation, or before you buy, sell or insure an asset.

BACS/CHAPS/SWIFT

• BACS: Bankers' Automated Clearing Services, an electronic payment, of up to £249,999 at CGWL, between two UK banks, that usually takes three business days for the money to be received.
• CHAPS: Clearing House Automated Payment System, an electronic payment between two UK banks where the funds are received the same day. Designed for high-value, time-sensitive payments.
• SWIFT:  Society for Worldwide Interbank Financial Telecommunications, an electronic payment system for international transfers between banks and financial institutions. Payment delivery times vary between one and five business days.

Balanced portfolio

This portfolio is typically divided between stocks and bonds, either equally or with a slight tilt, such as 60% in stocks and 40% in bonds.

Benchmark

A benchmark is a standard gauge by which investment performance can be measured. Benchmarks can be simple, such as ‘Consumer Price Index’ for inflation protection, or more complicated like composite benchmarks which can be used to measure the investment managers skill.  These will generally be a blend of equity and fixed income indices and linked to a clients’ investment strategy.

Bond yield

A bond's yield is the return an investor expects to receive each year over its term to maturity. For the investor who has purchased the bond, the bond yield is a summary of the overall return that accounts for the remaining interest payments and principal they will receive, relative to the price of the bond.

Bull or bear market

A bull market occurs when asset prices rise significantly over a sustained period, while a bear market is defined by a prolonged drop in asset prices.

Certificated form

Where an investor holds shares in paper  form – i.e. you have a physical share certificate. These certificates typically include details such as the shareholder’s name and  the number of shares owned.

Collective investment schemes

A financial vehicle that pools together funds from multiple investors to invest collectively in a diversified portfolio of securities, assets or other financial instruments, such as bonds, equities, cash or property.

Where CGWM uses these vehicles in your portfolio you will be subject to additional costs and charges relevant to the underlying funds within the collective investment scheme, often referred to as Ongoing Charges Figure 'OCF'. This comprises a one-off charge to enter or exit the fund (not always applicable), the funds recurring annual charges as well as any incidental costs. Please speak to your CGWL contact if you require further information in relation to these costs and charges.

Commodities

A raw material or primary agricultural product that can be bought and sold, such as copper or coffee.

Compound annual growth rate

A compound annual growth rate (CAGR) represents the rate at which a clients’ investment would grow if it had a steady rate of growth i.e. it is an average annual growth rate to show you smoothed annualised returns. For example, an investment may increase in value by 8% in one year, decrease in value by 2% the following year and increase in value by 5% in the next. With this inconsistent annual growth, a CAGR of 3.6% may be used to give a broader picture of an investment’s progress.

Contract charge

Our charge for carrying out a trade on your behalf. Also known as a transaction charge or dealing commission.

CREST

The UK depository where records of shares are held.

Coupon

A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until the bond maturity.

Credit markets

This is the market in which companies and governments raise money by issuing new debt in the form of bonds or stocks, which can then be traded between investors. Companies or governments will then have a limited amount of time (e.g. five years) to repay the investor the amount of money paid for the bond or stock with an additional payment of interest (e.g. 3%) at  the end of this term.

As well as government bonds or ‘publicly’ issued debt (financial obligations incurred  by governments), credit markets also include the following investment markets:

• Corporate bonds – issued by a company to raise financing for reasons such as ongoing operations or business expansion
• Collateralised loans – or secured loans using an asset of value, e.g. a mortgage secured on a house
• Privately issued debt – loans to companies issued by private investors or private debt funds rather than banks or public markets.

As the bond market is the largest part of the credit market, the terms ‘bond market’, ‘debt market’ and ‘credit market’ can be used interchangeably.

Credit risk

This is related to the borrower’s ability to repay the debt while duration risk is related to interest rate changes.

Discretionary management

An investment manager runs a clients’ portfolio without needing to ask their permission each time they want to make an adjustment, taking account of the clients’ individual needs and risk objectives.

Dividends

A dividend is the distribution of corporate earnings to eligible shareholders within a company. Dividend payments and amounts are determined by a company's board of directors. The dividend yield is the dividend per share and expressed as a percentage of a company's share price.

Dividend per share (DPS)

This is the sum of declared dividends issued by a company for every ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time by the number of outstanding ordinary shares issued.

Dividend yield

Dividend per share divided by the share price, often expressed as a percentage. For historic periods the average share price for the year is used, for forecasts the current share price is used.

Domicile

A legal place of residence, where a company and its shares are registered or established.

Drawdown

This helps determine an investment’s financial risk. A drawdown from an investment’s high to its low is considered its ‘drawdown amount’. It is usually recorded during a specific period and quoted as the percentage between the peak and the subsequent trough.

Drawdowns present a significant risk to investors when considering the uptick in investment value/price needed to overcome a drawdown. The greater the loss, the more needed to recover. For example, it may not seem like much if an investment loses 1%, as it only needs an increase of 1.01% to recover to its previously held position. However, a drawdown of 20% requires a 25% return, while a 50% drawdown – seen during the 2008 to 2009 Great Recession – requires a whopping 100% increase to recover the same position.

The maximum historic loss is the maximum loss from peak to trough in an investment’s history.

Duration

This is a measurement of a bond’s interest rate risk that considers a bond’s maturity, yield, coupon and call features. These many factors are calculated into one number that measures how sensitive a bond’s value may be to interest rate changes.

Earnings per share (EPS)

An indicator of a company’s profitability, it is the portion of profit after tax allocated to each outstanding share in issue.

EBITDA

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) gives an indication of a company’s financial performance.

Economic moat

Refers to a business’s ability to maintain competitive advantages in order to protect its long-term profits and market share from competing firms.

Enterprise value

This is defined as equity market capitalisation plus net debt. This metric may be used to value a company for a potential takeover.

Equities

An equity investment, also called a ‘share’ or ‘stock’, is a unit of ownership in a company.

Financial instruments

Tradeable assets, with a monetary value, that represent a legally binding agreement or contract between parties. Financial instruments are bought, sold, or traded in financial markets and are typically categorised as follows:

• fixed-income instruments or money market instruments (gilts, Eurobonds, loan notes, debentures, Permanent Interest-Bearing Shares ‘PIBS’)
• collective investments (unit trusts, ICVC, funds and fund of funds)
• other financial instruments (equities /stocks, derivatives, commodities, property, investment funds, unit trusts, exchange traded funds ‘ETFs’, preference shares, warrants, convertibles, and new issues).

Foreign exchange (Forex or FX)

A charge made to convert money received in a currency other than sterling,  back to the portfolio base currency, which is typically sterling.

Fixed interest or fixed income investments

Fixed interest/income investing – often referred to as investing in bonds – provides a fixed amount of annual income for a client, which is usually a fixed percentage  of the nominal amount purchased. The  largest sector of the fixed income market is made up of bonds issued either by governments (‘UK gilts’ or ‘US Treasury bonds’)  or by companies (‘corporate bonds’).

Gross margin

Gross margin is net sales less the cost of goods sold. It’s the amount of money a company retains after incurring the direct costs associated with producing the goods it sells and the services it provides.

Growth stocks

A company that is expected to deliver better than average organic revenue and earnings growth  over the medium term.

Holding period

This is the length of time an investment is held between purchase and sale (or redemption).

Interest rate risk

This is the likelihood that a change in overall interest rates will reduce the value of a bond or other fixed-rate investment: as interest rates rise, bond prices fall, and vice versa. This means that the market price of existing bonds drops to offset the more attractive rates of new bond issues.

Investment funds (unit trusts)

An investment fund or unit trust pools investors’ money together into a single fund; managed in accordance with a defined strategy. It is a more efficient way of investing smaller amounts of money, in terms of cost and diversification.

Investor sentiment

Investor sentiment (or market sentiment) is the overall attitude of investors toward a specific market, sector or asset. It suggests their enthusiasm for, or pessimism about, investing in that area, and is reflected in market movements. If investors are feeling ‘bullish’, asset prices will rise. If they are ‘bearish’, investor sentiment is low, and prices will fall.

Lagging effect

This is the amount of time between the time action is taken and an effect is realised.

Legal Entity Identifier (LEI)

A unique number typically required to identify legal entities such as all corporations, financial institutions, trusts and charities. The LEI needs to be in place before we can trade on behalf of the legal entity.

Magnificent seven

These seven mega-cap tech stocks are Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. They represented over 60% of the S&P 500’s 25% gain in 2023.

Money market funds

These funds invest in high quality, short-term debt securities and pay dividends that generally reflect short-term interest rates.

Net asset value (NAV)

The net asset value (NAV) represents the net value of an entity and is calculated as the total value of the entity’s assets minus the total value of its liabilities. Most commonly used in the context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per share/unit price of the fund on a specific date or time.

Next twelve months (NTM)

Next twelve months (NTM) refers to any financial measure that is forecast for the immediate next twelve months from the current date.

Nominal and real returns

Nominal returns are the actual monetary returns from an investment, either defined in a currency or in percentage terms. Real returns adjust nominal returns for the influence of inflation. For example, receiving  £105 for a £100 original investment is a 5% nominal return. If inflation over the holding period of the same investment has been 10%, then the real return is a loss of 4.5% (i.e. £105 divided by 1.1 = £95.5 to adjust for a 10% inflation rate).

Non-discretionary (also known as advisory)

An investment manager requires a clients’ approval before buying and selling assets within their portfolio.

Non-UK securities

Assets such as bonds or shares that trade on  a market outside the UK.

Quarter-up / probate valuations

Quarter-up valuations are ad-hoc periodic assessments of the value of the portfolio, typically for the purpose of tax and accounting, compliance or estate/inheritance planning or perhaps loan or financing purposes. Whereas probate valuations are property assessments carried out to determine the market value of a deceased person's property or estate. Accurate probate valuations are essential to ensure fair and appropriate distribution of the estate.

Overseas dealing charge

An additional fee for trades in non-UK  shares, to cover the costs of dealing in non-UK markets.

Passive investing

An investment manager builds a portfolio which attempts to track the performance of an index by replicating the stocks held within this index. It is commonly known as ‘index tracking’.

Portfolio/investment management

This involves an investment manager building and overseeing a client’s investment portfolio, ensuring it meets their long-term financial goals and risk objectives.

Price to earnings ratio

The price to earnings (P/E) ratio measures a company’s current share price against its earnings per share. Using sterling as an example, it shows how much investors are willing to pay for each pound the company earns; for example, if a company has a P/E ratio of 15, investors are happy to pay £15 for every £1 of earnings. A high P/E ratio suggests that investors are optimistic about the company’s future growth, while a low P/E ratio means they are less certain.

Investors and analysts use P/E ratios to calculate the value of a company’s shares compared with other businesses in its sector. The ratio can also be used to measure a company against its own past performance  or to compare markets over time.

Registrar

An entity responsible for maintaining accurate records of the ownership of shares in a company or units in a fund.

Short-dated gilts

These are conventional (i.e. not index- linked) UK government-issued fixed interest assets with less than five years until repayment of the original amount borrowed.

Short selling

Selling of a stock that the investor does not own. Considered a high-risk strategy that involves speculating on the decline of a stock or security’s price, by borrowing shares and then selling them to buyers willing to pay the market price.

Sideways market

A sideways market, also known as a sideways drift, occurs when the prices of assets fluctuate within a relatively narrow range over a period of time, typically without displaying a clear trend in either direction.

Smaller companies

These are companies either listed on the Alternative Investment Market (AIM) or those with a market capitalisation of less than £2bn, which are not within the FTSE 100. The companies listed on AIM can have market capitalisations above £2bn. In addition, we mean equivalent companies listed outside the UK, although size thresholds may differ from jurisdiction to jurisdiction.

Sponsored holding statement

An electronic statement provided by a financial institution or brokerage firm, showing records of share ownership of investments or securities that are held in a custodial or nominee account. ‘Sponsored’ means the financial institution is responsible for administering and holding investments on behalf of the account holder.

Spreads

A credit spread is the difference between the yield of two bonds that have a similar maturity date but different credit ratings. Bond credit spreads change continuously, just like stock prices. A narrowing bond credit spread can point to improving economic conditions and lower overall risk. A widening bond credit spread typically suggests worsening economic conditions and higher overall risk.

Stamp duty

A tax levied by the UK government, charged on the purchase and transfer of shares, known as Stamp Duty Reserve Tax (SDRT).

Trade

Buying and selling financial instruments such as collective investments, bonds or equities.

UK gilt market

Gilts are government bonds in the UK, similar to US Treasury bonds. The term gilt describes a bond with a low risk of default and a low rate of return, and the name comes from historical certificates with gilded edges issued by the British government.

UK securities

Assets such as bonds or shares that are domiciled and traded in the UK.

Underweight position

This position, in one or more securities in the portfolio, occurs when the return on the financial asset is going to underperform in its sector or below its benchmark.

Value stocks

Investors looking for ‘value’ seek out stocks which they believe have been undervalued by the market and are trading for less than their intrinsic worth. They are viewed as trading at a lower price than justified when measured against metrics such as earnings, profit margins or sales.

Volatility

Volatility is a measure of how far a range of values moves from its average value over a set period of time. Within our Risk Framework brochure and individual risk profile documents, we show a  three-year period to calculate this since we believe this represents the most appropriate time scale over which to capture the characteristics of the indices used in our risk profile documents. We use a rolling measure, calculated on a monthly basis, which means we use the previous 36 months of data at any given point in time. The greater the range of returns, the higher the volatility and thus the higher the potential risk of the strategy.