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Investment Terms
The Investment Terms provide plain English definitions of common investment and finance terms used on this web site.
To find a word in the Investment Terms, click on the corresponding letter of the alphabet below.
If you are unsure of the meaning of a word and can't find it in the Investment Terms, please Contact Us.
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- Active Management
- An investment management style focused on attaining returns above an established benchmark through asset allocation and stock selection.
- Active Market
- A description of a market in which the volume of securities trading is well above normal.
- Active Position
- When the level of investment in a particular asset (or class of assets) exceeds the benchmark level of investment for that asset (or class of assets).
- Allocated Pension or Annuity
- An investment product purchased with a superannuation lump sum to provide an annual income stream. The investor selects a level of income they will receive each year based on a range calculated from the account balance and a set of age based factors.
- Annuity
- A regular income stream generated by a lump sum investment.
- Asset Allocation
- The formal process through which an investment portfolio selects which different asset classes (shares, bonds, property, cash and overseas investments) to invest in and how much to invest in each class. Also known as investment mix.
- Asset Class
- A loosely defined category of financial assets (e.g. fixed income, cash, equities etc.).
- ASX 200
- The Standard & Poor Australian Stock Exchange 200 Index is a capitalisation (or -total market value) -weighted list of the top 200 stocks on the Australian Stock Exchange ranked by market size.
- Australian Ratings
- An Australian credit rating agency, based in Melbourne and owned by Standard & Poors.
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- Balanced Fund
- An investment portfolio that distributes its investments over a range of asset classes (generally including shares, fixed interest, cash and equities).
- Bear
- An individual who believes the market will decline.
- Bear Market
- A market which experiences sharp declines as a result of widespread pessimism.
- Benchmark
- An index or other measurement tool used by fund managers to assess the risk/performance of a particular investment portfolio.
- Bond
- A security issued by corporations and governments in exchange for loans from investors. The bond issuer is, essentially, borrowing from investors (which constitute creditors, not shareholders), and pays interest throughout the life of the bond.
- Bottom-Up Management
- A bottom-up manager concentrates on identifying individual assets or stocks which they believe represents a good investment rather than the relative performance of the asset class as a whole.
- Broker
- An individual that acts as an investor’s agent for the sale and purchase of securities (such as shares).
- Brokerage
- The fee charged by a broker or financial adviser for performing a transaction. Also referred to as commission.
- Bull
- An individual that believes the market will rise.
- Buy/Sell Spread
- The difference between the entry and exit (that is, purchase and sale) cost of an investment in a managed fund.
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- Capital Gain/Loss
- The difference between the sale price of a capital asset and its cost (or purchase price).
- Capital Gains Tax (CGT)
- A tax payable on the gain (or profit) made on an investment upon its sale.
- Capital growth
- The increase in value of an investment over time (excluding any income derived from that investment e.g. dividends).
- Cash
- An asset class that covers coin and note currency and money market securities.
- Cash Management Trust (CMT)
- A conservatively managed investment trust that holds cash securities and provides the potential for a higher return than standard bank savings accounts.
- Commission
- The fee charged by a broker or financial adviser for performing a transaction. Also referred to as brokerage.
- Commodity
- A tradeable item that can generally be further processed and sold; includes industrial (metals), agricultural (wool, wheat, sugar, etc) and bulk (coal, iron ore) goods.
- Complying Fund
- A superannuation fund that complies with the requirements of the Superannuation Industry Supervision legislation, thereby making it eligible for concessional tax treatment.
- Compound Interest
- Interest calculated on both the principal sum invested and any interest previously accumulated.
- Consumer Price Index (CPI)
- An index measuring the price, from time to time, of a basket of goods and services bought by ordinary Australian households, used for the purpose of comparing the relative cost of living.
- Contributions Tax
- A tax levied on certain contributions to superannuation funds.
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- Deferred Annuity
- An annuity that begins payment at a fixed, future date.
- Derivatives
- The generic term applied to certain financial instruments, such as futures and options, whose value derives from other commodities, indices or share prices.
- Distributions
- Payments by managed investments representing the recipient’s portion of any net income and realised capital gains earned by the investment over the financial year.
- Diversification
- A process by which investment funds are spread among different classes of securities and geographic regions in an effort to balance and manage risk. Put simply, it is the implementation of the old adage: Don’t put all your eggs in one basket.
- Dividend
- A payment made to company shareholders representing their portion of after-tax profits.
- Dow Jones Index
- A share price index measuring the market prices of 30 representative industrial companies on the New York Stock Exchange. The United States equivalent of the Australian Leaders Index.
- Duration
- A measure of the sensitivity of fixed interest investments to changes in interest rates that takes into account both redemption date of the investment, the dates on which interest payments are made and the amount of interest payable.
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- Eligible Termination Payment (ETP)
- Payments from superannuation funds and some payments received on termination of employment are ETPs. If taken in cash, ETPs may receive concessional tax treatment, depending on the components of the payment and the age of the recipient. ETPs can be rolled over to a superannuation vehicle, which will defer the payment of any tax, other than tax on unfunded benefits.
- Entry Fee
- The fee payable when investing with a managed fund (normally calculated as a percentage of the amount invested and generally payable for both initial and subsequent investments).
- Equity
- (a) Another term for a share in a company; (b) The difference between the value of an asset and the debt secured against it.
- Exit Fee
- The fee payable when withdrawing some or all of an investment in a managed fund.
- Exit Price
- Units are redeemed at the Exit Price, which includes an allowance for Dealing Costs where applicable. The price for a particular day is effective for any valid redemption request received at BlackRock up to 5pm Melbourne time. From 21 June 1999 all funds are “forward priced”
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- Forward Pricing
- A calculation in which the price for a transaction is derived using the underlying value of an asset as at the end of the day on which it is calculated.
- Financial Planning Association of Australia (FPA)
- A professional organization representing the financial planning industry within Australia.
- Forward Pricing
- Prior to 21 June 1999, we used "historical pricing". This means that the price for a particular day reflected the asset values as at the end of the previous day - i.e. they were a day behind the market. Under forward pricing, the price for a transaction reflects the asset values as at the end of that day. This means that the price at which you enter or exit the fund will not be known until the next business day. The prices quoted on this site are the prices effective for transactions received on the "Price Date" as shown on the Prices Page.
- Franked Dividends
- Dividends issued with imputation tax credits reflecting the amount of tax already paid on profits by the company issuing the dividends.
- Franking Levels
- The degree (expressed as a percentage) to which a dividend is “franked”.
- FTSE
- Financial Times Stock Exchange Index, comprising the 100 largest public companies listed on the London Stock Exchange.
- Full Entry
- Units are issued at the Full Entry Price for investments of less than $2 million, for direct investments and when the adviser indicates that the full entry fee is to be applied. This price includes Dealing Costs, Financial Institutions Duty (at 0.06%) and the maximum Entry Fee for the particular fund. The price for a particular day is effective for any valid applications received at BlackRock up to 5pm Melbourne time. From 21 June 1999 all funds are "forward priced". Applications can only proceed on the form attached to a current disclosure document, which is available on request from any BlackRock Office.
- Fund
- A pool of funds provided by investors which is used to make investments according to a particular investment objective.
- Fund of Funds
- A managed fund which invests in other managed funds. This is an investment vehicle that enables individual investors to invest money into one or more underlying investments operated by professional managers.
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- G7
- Group of Seven. The finance ministers from the seven major capitalist powers – United States, Canada, United Kingdom, Japan, France, Italy and Germany.
- Garp
- Growth at a Reasonable Price, a style which aims to identify undervalued companies compared to their future earnings growth potential. This type of style usually uses a ranking or scoring system to produce an absolute figure, which represents the stocks price to its growth potential.
- Gearing
- (a) a measure of the level of debt against the value of an asset; (b) the process by which the investment capacity of an investor is increased through borrowings.
- Gross
- The total amount, before deductions or expenses are taken into account.
- Gross Domestic Product (GDP)
- A measurement of the aggregate goods produced and services provided within a country’s economy over a single year, excluding income earned outside the country.
- Growth Assets
- A generic term for assets that provide investment returns that outperform inflation.
- Growth Fund
- An investment fund that primarily invests in growth assets.
- Growth Management
- Growth managers have less regard to price, concentrating on investments that will produce large amounts of capital growth over the long term. They focus on earnings growth and cashflow believing that the generated growth in earnings will force the stock price to rise. These companies usually have high P/E ratios.
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- Hard Close
- when referring to a Hard Close Exit Price is the exit price (ie the price at which investors realise an entitlement in a unit trust scheme) that is calculated based on the close of market valuations of a particular day. The Hard Close Exit Price for a particular day is not the price used to process redemptions during the normal course of business on that day - this is the Soft Close Exit Price. The Hard Close Exit Price for a particular day is normally struck one or more days after that day once the close of market valuations have become available.
- Hard Landing
- A euphemism for an economic recession; that is, a period of negative economic growth. A recession is said to occur when an economy experiences two consecutive quarters of negative GDP growth.
- Hedge Fund
- A type of investment portfolio under which the fund manager is authorized to use a number of higher risk investment techniques, including using derivatives, short selling and borrowing funds, in order to generate a higher return. Hedge funds have become particularly common in the United States but are not prominent in the Australian investment scene at present.
- Hedging
- The process of protecting an existing investment by using another type of investment to cover potential adverse market movements.
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- Imputation Credit
- Tax credits passed onto shareholders in the form of franked dividends.
- Income
- Regular investment returns (e.g. dividends from shares, rent from rental properties etc.).
- Index Management
- An index fund seeks to take most of the “judgement” out of portfolio building by just simply constructing a fund that very closely follows a chosen index. If the index rises, the Index Manager then adjusts the portfolio to reflect this move. The main idea here is that an Index Fund does not have the expense overhead of other funds (ie equity analysts, company visits, resident economist etc).
- Individual Portfolio
- A group of investments managed on behalf of an individual or single organisation.
- Industrials
- Companies that engage in the production of and or sale of goods and services, as opposed to resource companies who are engaged in mining activities.
- Inflation
- An increase in the price of goods and services, generally measured by the Consumer Prices Index (CPI).
- Investment Manager
- An organisation that manages investments in a portfolio on behalf of a group of individuals or organisations within the guidelines stipulated and directions given by those investors.
- Investment Mix
- The formal process through which an investment portfolio selects which different asset classes (shares, bonds, property, cash and overseas investments) to invest in and how much to invest in each. Also known as diversification.
- Investment Philosophy
- The guiding principles used by investors to govern their investment decisions. Not to be confused with “investment style”, which is normally described in terms of the level of risk the investor is comfortable with.
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- Junk Bond
- A high risk, high yield, debt security rated below triple B.
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- Key Features Statement
- A disclosure document that was required to be provided to all prospective members of a Public Offer superannuation fund.
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- Lehman Global Aggregate Index
- A broad index of global bond issues that are of investment grade. The index includes both government and non-government (corporate, mortgage backed etc) issues.
- Listed Company
- A company whose shares may be traded on the stock exchanged by members of the public.
- Listed Security
- A security (such as a share) that may be bought and sold via a public exchange.
- Lump Sum
- In the context of superannuation, a benefit payable in full in cash, rather than over a period of time as a pension or annuity.
- Lump Sum Tax
- The tax payable on the lump sum component of a superannuation payout.
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- MSCI
- Morgan Stanley Capital International Indices, a collection of equity indexes for a range of, and groups of countries.
- Managed Investments (or Funds)
- An investment vehicle in which multiple investors pool their money, which is then managed by a professional fund manager on their behalf.
- Management Expense Ratio (MER)
- The total fees and expenses payable by investors in a managed fund expressed as a percentage of the average net value of the fund’s assets.
- Market rally
- A strong rise in the level of a share or market following on from a decline.
- Market Timing
- Active trading in securities, such as shares, in order to take advantage of temporary market opportunities, price fluctuations and perceived price patterns.
- Master Fund
- An investment vehicle structured to allow investors to invest in several underlying investments. Also known as Master Trusts.
- Maturity Date
- The date upon which a debt or security (such as a bond or loan) is due to be repaid.
- Member Choice
- More recently, the term member choice has been used to describe the Liberal Government’s push to allow all individuals the right to choose their own superannuation fund to which their Superannuation Guarantee Contributions are made. Member choice can also describe the process where members of a superannuation fund have the ability to choose the way their superannuation benefits are invested from a menu provided by their fund.
- Monetary Policy
- Actions undertaken by the Reserve Bank in order to influence the availability and cost of money (e.g. interest rates).
- Multi-Manager
- These managers outsource the management of their funds to one or more established fund managers. The managers are continually assessed and if performance lapses or the fund strays from its investment style the manager may be replaced with another fund manager. Managers are usually combined to provide diversification not investment style.
- Multi-Style
- These managers employ a number of different investments styles when managing their portfolios.
- Mutual Fund
- North American terminology for a managed fund. See managed fund.
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- NASDAQ
- National Association of Securities Dealers Automated Quotation. An automated system for providing price details and buy/sell order execution for the most actively traded securities in the United States.
- Negative Gearing
- An investment made using borrowed funds where the interest payable on the borrowings exceeds the income generated by the investment.
- Net Asset Value (NAV)
- Total value of a company’s assets after liabilities are deducted.
- Net Present Value (NPV)
- The current value of an investment income over the period of the investment, discounted by any influencing factors (such as inflation).
- Nikkei Dow Index
- The popularly quoted Japanese Share Price Index, cover thing the top 225 shares listed on the Tokyo Stock Exchange.
- Non-Complying Fund
- A superannuation fund that does not meet the prerequisites established under the Superannuation Industry Supervision legislation for concessional tax treatment.
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- Option
- An instrument that gives the right but not the obligation to buy or sell an underlying security or commodity at a stipulated price on or before a specified future date.
- Outperformance
- Achieving a higher rate of investment return than an accepted benchmark (e.g. earning a 10% return over a period in which the All Ordinaries Index rose only 3%).
- Over the Counter
- A security that is not traded on an exchange. For such securities, broker/dealers negotiate directly with one another over computer networks and by phone.
- Overweight
- Having a greater exposure to a particular investment sector or stock compared with an established benchmark.
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- Passive Management
- A style of investment management that seeks to achieve performance equal to the relevant market index and therefore reduce the amount of active decision making and the costs incurred in managing the fund. By doing this they aim to achieve returns which will mirror the performance of the reproduced index.
- Pension
- An ongoing, periodic income payment, from either the Government or an investment.
- Pension Fund
- A superannuation fund that pays an income stream upon retirement rather than (or in addition to) a lump sum.
- PE Ratio – Price Earnings Ratio
- A stock’s market price divided by its current or estimated future earnings per share. The PE Ratio is used by the investing public as a fundamental measure of the attractiveness of a particular security versus other securities. The lower the ratio the relative to the average of the sharemarket, the lower the market’s profit growth expectations.
- Pooled Investment
- Any form of investment in which two or more individuals invest their money with a fund manager to invest on their behalf.
- Pooled Superannuation Trust (PST)
- A superannuation trust that complies with the requirements of the Superannuation Industry Supervision legislation.
- Post 1983 Component
- That part of a superannuation benefit relating to employment or superannuation fund membership since 30 June 1983.
- Post June 1994 Invalidity Component
- Part of the Eligible Termination Payment that relates to future service loss through invalidity. Termination from the workforce has occurred because of mental or physical incapacity.
- Pre 1983 Component
- That part of a superannuation benefit relating to employment or superannuation fund membership before 1 July 1983.
- Preservation
- Is the term used to describe the rules that determine when individuals can voluntarily gain access to their superannuation, and when it is compulsory for them to take their benefit. Generally speaking, preserved superannuation benefits can only be accessed on permanent retirement from the workforce after reaching age 55.
- Preserved Benefit
- Superannuation benefits, which cannot be accessed until a condition of release has been met ie; Attained Preservation age.
- Price Date
- Is the date for which the displayed unit prices are applicable.
- Probate
- Process by which a deceased's will is authenticated and implemented by an Order of the Court.
- Product Disclosure Statement
- A disclosure document required to be provided to retail investors under the Corporations Act prior to the issue of financial products, setting out prescribed information required by retail investors for the purpose of making a decision whether to acquire the financial products.
- Prospectus
- A legal document that was required to be lodged with the Australian Securities and Investments Commission that detailed to potential investors the nature of an investment (such as a managed fund) and how investors may have expected it to perform prior to the introduction of the FSRA regime on 11 March 2004..
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- Quant
- Abbreviation for Quantitative Analyst, which is an individual that specialises in quantitative management of investments.
- Quantitative Management
- An investment approach that uses mathematical methods to create portfolios with the optimum balance between expected risk and expected return.
- Quartile
- A statistical measure dividing a sample group into four equal parts.
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- Realise
- To sell or trade an asset.
- Real Return
- An investment return adjusted for inflation.
- Reasonable Benefit Limit (RBL)
- The lump sum and pension RBLs dictate the maximum concessionally taxed benefit that can be received by each individual from superannuation over their lifetime. Once these limits have been exceeded, any additional benefits become excessive, and are subject to a higher rate of tax.
- Rebate
- The refund of a portion of a payment.
- Redemption Price
- The price at which an investor can sell his or her units in a managed fund or unit trust.
- Recession
- A significant slowdown in the economy, but not of the same severity or duration as a depression. The rule of thumb for a recession is a period in which a nation’s Gross Domestic Product declines over two consecutive quarters.
- Regulate Superannuation Fund
- A superannuation fund which falls under the regulation of the SIS Legislation. A fund becomes a regulated superannuation fund when it elects to adopt a corporate trustee structure, or when its principal activity is the provision of age pensions to its members. Although not compulsory, the transition to a regulated fund is necessary to achieve complying fund status and to be eligible for concessional taxation treatment.
- Restricted Non-preserved benefits
- Superannuation benefits which, in the case of employees, can be paid on termination of employment. These funds can only be released if the employer has made a contribution to the client’s superannuation fund which holds a restricted non preserved benefit.
- Return
- The money generated annually by an investment, usually expressed as a percentage of the total investment.
- Risk
- The volatility inherent in an investment vis-à-vis the expected return.
- Risk Management
- The processes and procedures adopted by an investor or fund manager to monitor and control or minimise risk.
- Rollover
- In the context of superannuation, the depositing of an eligible termination payment into an approved fund in order to minimise or avoid payment of a lump sum tax.
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- S&P 500
- The Standard & Poor’s 500 Index, an index of US 500 stocks ranked by capitalisation (or -total market value).
- Salary Sacrifice
- A portion of an employee’s pre-tax salary kept by the employer in return for additional superannuation contributions by the employer on the employee’s behalf.
- Sector
- A group of securities that share common characteristics, e.g. mining sector, technology sector.
- Security
- (a) an asset traded on a financial market (e.g. shares); (b) an asset pledged as collateral for a loan (e.g. mortgage).
- Share
- An instrument providing part ownership of a company and the right to participate in any profits.
- Short Selling
- The sale of a security that is not yet owned, in the expectation that its price will fall so that it can be bought back later at a profit.
- Soft Landing
- A euphemism for when an economy does not achieve its potential or long run growth rate, but is still experiencing growth.
- Stamp Duty
- A levy imposed by state governments on certain transactions.
- Stock
- Another term for shares.
- Strategic Asset Allocation
- The composition of an asset mix within a portfolio, constructed with the objective of meeting the long-term liabilities of a fund, rather than being based on short-term views of relative performance of the various asset classes.
- Superannuation
- A tax effective vehicle for saving money for retirement.
- Superannuation Guarantee (SG)
- Legislation that requires employers to provide a minimum level of superannuation contributions for most employees. (For an individual on a full-time, part –time or casual basis who is paid at least $450 per month and is under age 70). The required minimum level of SG is currently 9%.
- Superannuation Surcharge
- A tax levied on superannuation contributions over and above the standard 15% contributions tax.
- Switch
- When investments are switched from one fund to another, the units are redeemed from the existing fund at the Exit Price, and usually invested in the new fund at the Switch Price.
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- TAA
- Tactical Asset Allocation
- Tactical Asset Allocation
- The process by which the asset allocation policy of a managed fund is changed to take advantage of market opportunities.
- Tax Deductible
- An expense or charge that can be offset against assessable income.
- Thematic
- Thematic managers use macro economic research and expertise to develop themes for asset allocation decisions. The aim of thematic managers is to identify those factors in the market that will have a strong influence on business profitability and on market values.
- Top-Down Management
- A top-down manager assesses the investment market by taking a broad economic view. They consider the economic, social and political environments to determine the relative attractiveness and likely direction of the various asset classes. Once the appropriate asset allocation has been determined for each asset class the top down manager will then assess the differing assets or stocks within those asset classes.
- Total Return
- The aggregate increase or decrease in the value of a portfolio resulting from the net appreciation (or depreciation) of the principal of the fund, plus or minus the net income (or loss) experience by that fund during the period.
- Tracking Error
- A measure of how close the portfolio follows a representative market index -(such as the All Ordinaries), which indicates, based on historical data, how the returns of the portfolio may differ from index returns.
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- Unclaimed Monies
- Money in a superannuation fund is defined as unclaimed when a person has reached the age where he/she would be eligible for an age pension, but the person has not applied to have the funds released and the Trustee has been unable to locate the person. Unclaimed monies must ultimately be transferred to the Victorian Government Unclaimed Monies Register if the person cannot be located within a time frame of 7 years.
- Undeducted Contribution
- A Component of an eligible termination payment comprising superannuation contributions (usually by employees) after 30 June 1983 for which no tax deduction was claimed.
- Underperformance
- Achieving an investment return lower than an accepted benchmark.
- Underweight
- Having a lesser exposure to a particular investment sector or security compared with an established benchmark.
- Unit
- A single share in underlying assets of a managed fund.
- Unitholder
- An investor in a managed fund.
- Unit Trust
- A pooled investment fund established under a trust deed that sells units to new investors and buys-back existing units from owners when they wish to sell.
- Unrealised Capital Gain
- The increase in value of an asset not yet sold.
- Unrestricted Non Preserved Benefit
- Superannuation benefits to which no payment restrictions apply. These benefits can be paid out to member at any time on demand irrespective of age, employment situation or financial position.
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- Value Management
- A Value Managers believe that securities often trade above and below their assessed “fair value”. A Value Manager aims to exploit market conditions by purchasing securities when the represent good value (ie “cheap”; trading below their assessed value) and selling them when they become overpriced (ie “expensive”’ trading above their assessed value).
- Venture Capital
- Investment capital invested in investment vehicles carrying higher than normal risk, usually associated with financing new businesses or technology projects.
- Volatility
- The level of fluctuation in a given market.
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- Weighting
- The relative proportion of individual securities or assets, or groups of securities or assets within an investment portfolio.
- Wholesale Investment Products
- Investment funds structured for professional investors and other large investors (such as superannuation funds).
- Withholding Tax
- The tax payable on payments to foreign entities, such as dividends or interest repayments.
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- X
- There are no definitions for X.
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- Yield
- The return generated by an investment expressed as a percentage of the total value of the investment.
- Yield Curve
- A visual representation of the term structure of interest rates. It shows the relationship between bond yields and maturity lengths. A normal or positive yield curve signifies higher interest rates for long-term investment, while a negative or downward curve indicates higher short-term rates.
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- Zero Coupon Bonds
- Discounted bonds which are issued with no coupon; ie; there is no periodic income payment, and the yield to the bondholder is derived from the capital value of the bond at its maturity.
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