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Glossary

Here is a simple reference guide to some of the technical terms that you may come across as you explore our funds.

A

Absolute return funds

Funds managed to increase in value over a certain period of time, regardless of market conditions.

Absolute return strategy

An investment approach that aims to increase a fund’s value over a certain period of time, regardless of market conditions.

Active funds

An active fund has a manager at the helm (and usually a team of analysts and researchers) who will select the assets he or she believes will increase in value. Actively-managed funds have the capacity to outperform their peers and the market as a whole. They are usually slightly more expensive than passive funds because investors must pay for the manager’s expertise.

Active risk

Some funds have a benchmark by which they can be measured. If the fund manager intentionally deviates from the performance of the benchmark to achieve higher returns then it is known as active risk.

Active share

Active share is the percentage of a fund’s holdings that differs from its benchmark. For example, an active share of 60% indicates that 60% of the fund differs from the benchmark.

Active management

There are two main types of investment management: active and passive. An active fund manager will use judgement, research, and analysis in order to select investments for the fund.

Alpha

Alpha is a measure of performance and is the result of active management. It can be positive or negative. A positive alpha indicates a fund has performed better than its benchmark.

Alternatives

A type of non-traditional investment that includes commodities, infrastructure, private equity, and venture capital.

Annualised return

For a period greater than one year, this measures how much an investment has grown on average each year.

Annual management charge

The fee paid for having your investment managed – usually a percentage of assets under management (AUM).

Annuity

A type of insurance providing a regular income in exchange for payment (via a lump sum or instalments).

Asset/asset class

Investments can be divided into five main groups called asset classes: cash, bonds, property, shares and alternatives.

Asset allocation

How an investment is split across asset classes. For example, a fund may hold a combination of shares, bonds and cash.

Assets under management (AUM)

The total value of investments held within a portfolio.

B

Balanced portfolio

A portfolio combining shares and bonds to even out risk and maximise return.

Balance sheet

Accounting statement showing a company’s financial position.

Bank of England

The UK’s central bank, which sets interest rates, issues banknotes and acts as a regulator of the UK’s financial system.

Bank of England base rate

The interest rate at which the Bank of England lends to institutions.

Basis points

A common term for interest rates and percentages in finance. One basis point equals 0.01%.

Below investment grade bonds

Also known as high yield bonds. These are issued by companies considered to be riskier and therefore generally pay a higher level of interest.

Benchmark

A standard, (usually an index or a market average) that an investment fund’s performance can be measured against. Many funds are managed with reference to a stated benchmark.

Beta

Measures the average extent to which a fund moves relative to the broader market. The beta of a market is 1, so a fund with a beta of more than 1 is considered more unpredictable. A fund with a beta of less than 1 is considered less unpredictable.

Bid-offer spread

The difference between the buying and selling prices of an investment in a dual priced fund.

Bonds

Bonds provide a way for governments and companies (issuers) to raise money. For an upfront payment from investors, a bond issuer will make annual interest payments and repay the initial investment amount on a specified date. Also known as fixed income or fixed interest investments.

Bottom line

Another term for profit or loss (this figure is shown on the bottom line of a company’s P&L statement).

Bottom-up investing

When a manager prioritises a company’s financial history, management and potential over general market or sector trends when making investment decisions.

C

Capital

The total assets of a person or company, minus any money they owe or financial obligations they have.

Capital growth

When the current value of an investment is greater than the initial amount invested.

Cash and cash equivalents

Short-term investments that are highly accessible, including deposits, money market instruments and short-term government bonds.

Cash flow statement

A financial statement showing the movements of cash in and out of a business over a given period.

Closed-ended funds

A company that invests in other companies or assets. There are a set number of shares in the fund, and this number does not change regardless of the number of investors.

Collective investment scheme

A fund combining the assets of various individuals and organisations to create a large, diverse portfolio.

Commodities

Physical materials such as oil, agricultural products and metals.

Compound interest

Interest calculated on an initial loan, and on the accumulated interest of previous periods of the loan. It is the interest on the interest.

Contract for differences (CFD)

A type of derivative which enables investors to trade on the price movements of an underlying investment. If the value of the money invested increases over the given period, then the seller will pay a percentage to the buyer. But if the value of the capital decreases, then the buyer must pay the seller.

Consumer Price Index (CPI)

A measure of UK inflation that reviews the change in the cost of a basket of consumer goods and services. It includes the costs associated with transportation, food and medical care.

Contrarian

Trading against the market. For example, buying a share that most others are selling, and selling a share that most others are buying.

Corporate bond

Bonds issued by companies to raise money. The company agrees to pay interest and repay the initial amount invested at a specified point in the future.

Correlation

A measure of how different investments’ values move in relation to each other. Highly correlated investments move up and down in value together, while investments with low (or negative) correlation tend to perform in different ways.

Coupon

The regular interest payment paid on a bond until it matures.

Credit rating

An independent assessment of a bond’s quality and the creditworthiness of the issuer. They run from the highest rating AAA through to the lowest D. The higher the rating, the lower the risk of default – i.e. an investor not getting their original investment back.

Credit rating agency

A company that assigns credit ratings to debt issuers. Agencies include Fitch, Moody’s and Standard & Poor’s.

Credit spreads

The difference in income (yield) between two bonds that share similar traits – e.g. maturity – but have different credit ratings. For example, if a 10-year UK gilt trades at a 1% yield and a 10-year UK corporate bond trades at a 3% yield, then the credit spread is 200 basis points (2%).

Cyclical

A company whose profits and share performance are relatively dependent on the pace and stage of economic growth.

D

Defensive

A company whose profits and share performance are relatively independent of the pace and stage of economic growth.

Derivatives

Derivatives are sophisticated investment instruments linked to the rise and fall of the price of other assets.

Developed markets

Countries that tend to have established industries, good standards of living and stable economies. They are considered safer for investment than less developed markets.

Dilution adjustment

Used to protect existing investors against the costs of buying and selling investments within the fund. It is normally only applied when those costs are significant.

Discount

The amount by which the share price is less than the net asset value per share.

Diversification

Holding a variety of different investments across different asset classes with the aim of reducing risk.

Dividend

A payment from a company to its shareholders, usually made in cash. Payments are generally made quarterly, bi-annually or annually.

Dividend reinvestment

When dividends are automatically invested in additional shares of a fund, instead of a cash payment.

Dividend yield

The annual dividend per share divided by the current share price. It is useful for comparing investments.

Dual-priced fund

Dual-priced funds have separate prices for buying (offer price) and selling (bid price) units. The buying price is typically higher than the selling price.

Duration

A measure of a bond’s sensitivity to changes in interest rates. The longer the duration, the more sensitive it is.

E

Earnings per share (EPS)

A financial measure showing a company’s profitability, calculated as income divided by the number of ordinary shares.

Economic cycle

The changes that occur over time in an economy. The four main stages of the economic cycle are: expansion, peak, recession and recovery.

Emerging markets

Developing countries that have stronger growth potential than established economies, but also more volatility.

Entry charge

Often referred to as an initial charge, this is the charge that may be taken from your investment before the deal is placed in your chosen fund.

Columbia Threadneedle Investments does not currently apply any entry charges on its UK domiciled fund ranges, but if you buy our funds through certain distributors they may apply an entry charge.

Equities

Equities are shares in companies.

Esoteric investments

Non-mainstream assets including fine art, furniture, vintage cars and forestry.

Ex-dividend date

If an investor purchases a share on or after this date, they will not be entitled to the next dividend payment.

Exchange-traded fund (ETF)

An ETF is a type of fund that holds a basket of different assets. Investors can buy and sell shares in the fund, which allows the convenience of making a single transaction with the convenience of exposure to different types of assets.

Exchange

A recognised market where assets can be freely bought and sold. For example, the London Stock Exchange.

Exit charge

This is the charge that may be taken from the proceeds of your investment when you choose to sell your investment. Columbia Threadneedle Investments does not apply an Exit Charge.

Exposure

The amount by which a fund is invested in a particular security, market sector or industry.

F

Final salary pension

A company pension scheme that calculates pension benefits based on an employee’s salary at or near retirement and length of service.

Financial Conduct Authority (FCA)

The Financial Conduct Authority is the UK regulator for the financial services industry.

Financial Services Compensation Scheme

A compensation scheme available to customers of authorised UK financial services firms.

Fixed income

Investments such as bonds, which usually pay a fixed rate of interest.

Fixed-term savings accounts

Longer-term cash deposits for investors who don’t need access to their money for a fixed period.

Forward transactions

A contract between two parties to buy or sell a particular commodity or financial instrument at a pre-determined price at a future date.

Fund

A form of collective investment where investors’ money is pooled and invested in a variety investments.

Fund manager

An individual responsible for managing the assets in a fund.

Fund of funds

See Managed fund.

Fund volatility

The extent to which a fund’s value changes over time. The more pronounced and frequent the movements, the more volatile the fund is.

Fundamentals

A way of determining the financial health of a company by looking at its financial accounts rather than the share price.

Futures

When a seller and buyer agree to a price now for something they won’t trade until a specified time in the future.

G

Gearing

The extent to which a company is funded by shareholders and lenders. When the proportion of debt is higher than the equity a company is considered highly geared.

Gilts

A bond issued by the UK government.

Government bond

Bonds issued by a government to raise money for spending requirements. These are usually issued in the country’s local currency.

Guaranteed income bonds

A life insurance company will issue a bond in return for a lump sum or regular monthly payment. This provides investors with a fixed rate of income for a specific period, usually between six months and 10 years.

H

Hedge fund

An alternative investment fund that may use a variety of strategies to deliver returns.

Hedging

Hedging is a strategy to reduce or transfer risk in your portfolio.

High yield bonds

Corporate bonds issued by less secure companies. See also below investment grade bonds.

Historical yield

A fund’s yield over a given period of time. It is calculated by taking the income paid over a period and dividing it by the latest share price.

I

Index/indices

A method of measuring the collective value of a group of assets. For example, the FTSE 100 Index shows a single figure for the combined value of the 100 companies within it.

Individual savings account (ISA)

A tax-efficient way to save or invest. The amount you can pay into an ISA is capped annually.

Inflation

The rate at which the price of goods and services rise over time. The official measure in the UK is the Consumer Price Index (CPI).

Infrastructure

Infrastructure is physical systems of a business or nation—transportation, communication, sewage, water, and electric systems are all examples of infrastructure.

Investment Association

The Investment Association is the Trade Body for the UK’s investment management industry.

Illiquid assets

Assets that are difficult to sell or buy.

Initial public offering (IPO)

The first offering to the general public of a company’s shares. The shares are listed on one or more recognised exchanges so that they can be bought by investors.

Investment grade bonds

The highest-quality corporate bonds, as assessed by a credit ratings agency.

Investment objective

A description of how a fund will be managed and what investors can expect over a specific timeframe.

Investment trust

A closed-ended company (see Closed-ended funds).

Investment universe

The choice of available investments a fund manager can pick, based on a fund’s investment objective.

J

K

Key Investor Information Document (KIID)

A document designed to help investors understand the nature and risks of a fund in which they may invest. Potential investors should always read the relevant KIID in order to make an informed decision before investing.

L

Leverage

Leverage refers to a fund being exposed to assets or markets by more than 100% of its net asset value, usually to improve returns. Leverage can also mean how much a company has borrowed compared with how much it owns. See also Gearing.

Liabilities

Any current or future financial obligations that a company has towards a person or other company.

LIBOR

An interest rate agreed for short-term bank-to-bank loans. LIBOR is widely used as a benchmark for short-term interest rates.

Liquidity

The ease or difficulty of buying or selling an investment.

Long exposure

When a fund with a long/short equity strategy has a higher level of exposure to long positions than short.

Long position

A security that is bought in the expectation that it will rise in value over time.

Long/short

A strategy that allows investment in long positions that benefit from price rises and short positions to take advantage of price drops.

Long-term investing

A long-term investor seeks to be invested over at least 5 years, often with a long-term goal in mind. People who invest for the long term are more likely to see the peaks and troughs of the stock market evened out over time.

M

Managed fund

An investment fund usually made up of a pool of other funds. An investor doesn’t invest directly in other types of security, but gains from broader asset exposure.

Margin

The difference between the cost of producing something and the revenue gained by selling it.

Market capitalisation

A measure of a company’s size, calculated by multiplying the total number of shares issued by the current share price. Companies are commonly grouped according to size as small-cap, mid-cap or large-cap.

Market risk

The possibility that an investment will fall in value owing to a general decline in markets.

Market exposure

The percentage of a fund that is exposed to a specific asset class or sector, and therefore the general market risks from these investments.

Market volatility

The range of a market’s price changes over time. Higher volatility means price changes can be significant, frequent and occur over a short time. Lower volatility means prices remain relatively steady, and movements are smaller and less frequent.

Maturity

When the original investment in a bond is due to be paid.

Medium-term investing

A medium-term investor may plan to be invested for 3 years or longer.

Money market instruments

Can be issued by governments or companies to raise money in the very short term. These are generally considered a cash equivalent.

Multi-asset fund

A managed fund that includes traditional asset classes (shares and bonds) and sometimes commodities, property or hedge funds.

Mutual fund

A type of open-ended fund.

N

Near cash

Assets that are not currently in the form of spendable cash but that could be converted very quickly.

Net asset value (NAV)

The value of a company/Fund’s assets minus its liabilities.

Net and gross exposure

The amount of a portfolio’s exposure to the market. Net exposure is calculated by subtracting the short exposure from the long exposure. If a portfolio is 100% long and 20% short, its net exposure is 80%. To calculate gross exposure, combine the value of the long and short positions – so if a portfolio is 100% long and 20% short, its gross exposure is 120%.

Non-cyclical

Company whose profits are relatively independent of the economic cycle.

O

Ongoing charges

The cost of management of a fund represented as a percentage. It is usually based on the last year’s expenses and may vary from year to year. It includes charges such as the fund’s annual management charge, registration fee, custody fees and distribution cost but excludes the costs of buying or selling assets for the fund (unless these assets are shares of another fund).

In some cases, the ongoing charges figure may be based on an estimate of future charges, either because the share/unit class is relatively new and has an insufficient track record to be calculated exactly, or if historic figures are unlikely to accurately reflect future ongoing costs. The fund’s annual report for each financial year will include details of the exact charges applied. An OCF shown with an asterisk (*) indicates an estimated figure.

For a more detailed breakdown please visit www.columbiathreadneedle.com/fees.

Open-ended funds

A collective investment scheme that invests in other companies and assets. The fund can issue an unlimited number of shares.

OEIC (open ended investment company)

A type of open-ended fund.

Options

Options are two-way trades that involve a buyer and a seller. An option allows the holder to buy or sell an asset at a stated price on or before a given date in the future.

Ordinary shares

A class of shares in a public company where the owner has the right to dividend payments and to vote at general meetings. These investors are below owners of preference shares and creditors in terms of a right to the company’s assets in the event of bankruptcy or liquidation.

Overweight

When a portfolio or fund has a higher percentage invested in an asset class, sector, geographical region or share than its index or benchmark.

P

Passive/Tracker funds

Passive funds attempt to replicate the performance of an index, such as the FTSE 100.

Passive management

An investment approach where a fund seeks to mirror the performance of an index.

Performance Fee

Some of our funds charge a performance fee if certain performance criteria are met. This is a payment made where the fund generates returns in excess of a set target. It is paid in addition to the annual management charge. If the fund does not meet this target, a performance fee will not be payable. The figure shown is averaged from the actual performance fees applied over the previous five years or may be based on a proxy if sufficient data is not available.

Portfolio

A collection of investments owned by an individual or institution.

Portfolio Turnover (Annual)

Rate at which assets within a fund are bought and sold, measured as a percentage of the portfolio the fund manager replaces on an annual basis. Measured as (Purchases + Sales) – (Subscriptions + Redemptions)) / Average NAV.

Preference shares

A class of shares in a public company where the owner has the right to dividends before owners of ordinary shares, but does not have voting rights. Holders of preference shares are above ordinary shareholders in terms of their claim to the company’s assets in the event of bankruptcy or liquidation.

Premium

This is the percentage amount by which a closed-ended fund’s share price exceeds the value of its assets.

Premium bonds

A lottery bond issued by the National Savings and Investments agency – the UK’s national savings bank. Bonds are entered in a monthly prize draw. Investors can sell their bonds back to the government at any time, at their original price.

Price (NAV)

The price at which fund shares or units are bought or sold.

Price-to-book value

Valuation measure of a company’s share price divided by the value of all its assets.

Price-to-earnings (P/E) ratio

Valuation measure of a company’s share price divided by its earnings per share.

Price change

The difference in price between two time periods, such as daily, monthly, year-to-date or the past 12 months.

Principal

The upfront payment made for a bond. This is paid back at the date of maturity.

Private equity

An alternative investment that seeks to maximise returns by investing in privately owned companies, rather than public shares.

Profit

The excess of cash left in a business after accounting for costs, expenses and taxes, during a set time period.

Profit & loss (P&L)

Financial Statement of the wealth created by a company’s operations. It shows all revenues, costs and expenses for a specific period.

Property

This usually means commercial properties such as offices, retail units or distribution warehouses.

Property expense ratio (PER)

Costs related to running and maintaining property funds that are not covered as part of the ongoing charges figure (OCF) are grouped together to form the property expense ratio (PER).

Prudential Regulation Authority (PRA)

The regulatory body responsible for prudential regulation of the UK’s financial services industry.

Q

R

Real estate investment trust (REIT)

An investment trust specialising in property that produces a regular income.

Redemption yield

Also known as yield to maturity. This is the expected income on a bond if kept until maturity.

Retail price index (RPI)

A measure of UK inflation that reviews the change in the cost of a basket of retail goods and services. It includes the costs associated with housing, such as mortgage costs, council tax and buildings insurance.

Revenue

The proceeds of a company’s sales over a given period.

Risk-adjusted return

A measure of how much risk a fund took to deliver a return to investors. By comparing the risk-adjusted return, investors can distinguish between high-risk and low-risk investments.

Risk and reward profile

The section of the KIID that looks at the risk characteristics of a fund. It gives a rating of 1 to 7, with 1 being low risk and 7 being high risk. The higher the risk, the higher the potential reward.

Rolling three-year period

Any period of three years, no matter which day it starts on.

S

Savings account

An account used to deposit money and earn interest over time.

Sector

Way of grouping companies according to the industry that they operate in.

Securities

An asset that has a value and can be bought and sold (i.e. bonds, shares or derivatives).

Self-invested pension plan (SIPP)

A government-approved personal pension scheme allowing investors to pick from a range of investments approved by HM Revenue and Customs (HMRC).

Shares

See ordinary or preference shares.

Short exposure

When a fund adopting a long/short equity strategy has a higher level of exposure to short than long positions.

Short position

A security bought in the expectation that it will fall in value over time.

Short selling

An investment strategy that speculates on the reduction in a security’s price. If the value of the security decreases, the investor can buy it at the lower price and make a profit when selling it back.

Short-term investing

A short-term investor will invest to make a reasonably quick return on their money, over a period from a day to a year or two.

SICAV (Société d'investissement à capital variable)

An open-ended collective investment scheme, which is commonly used in Europe.

Stocks and shares ISA

A tax-efficient way to invest. It differs from a cash ISA by investing in shares and/or collective investment schemes. The amount you can pay into an ISA is capped annually.

Swaps

Where two parties exchange (‘swap’) the liabilities of the financial instruments that each other holds. Examples include credit-default swaps and interest-rate swaps. A type of derivative.

Systemic risk

Systemic risk is the possibility that an event at a company level could trigger severe instability, or collapse an entire industry or economy.

T

Tax wrappers

An account that aims to protect your savings or investments from taxation. Examples include ISAs and SIPPs.

Top line

Another term for a company’s revenues, or sales.

Top-down investing

Investment strategy focusing on the larger macroeconomic or market-level environmental factors influencing a company when choosing investments.

Total return

A performance measurement considering factors like interest, dividend payments and capital growth.

Tracking error (ex-ante)

The difference in the amount an investor is forecast to receive from an actively managed investment, versus the amount expected by tracking its index (it may be positive or negative). Ex-ante refers to forecasted returns versus actual returns.

Tracking error (ex-post)

The difference in the amount an investor actually receives from an actively managed investment, versus the return expected by tracking its index (it may be positive or negative). Ex-post refers to actual returns versus forecasted returns.

Treasury bills

A short-term debt obligation backed by the US Treasury Department with a maturity of one year or less.

U

Undertakings for Collective Investments in Transferable Securities (UCITS) scheme

A type of fund regulated at a European Union (EU) level, offering high level of investor protection. In keeping with the idea of a single market, these funds authorised in one EU country may be sold to investors in other EU countries (known as ‘passporting’).

Underlying yield

A measure of the annualised income from an investment, after expenses are deducted.

Underweight

When a portfolio or fund has a lower percentage invested in an asset class, sector, geographical region or share than its index or benchmark.

Unrated bonds

A bond that is not rated by a credit agency.

Unit trust

A type of open-ended collective investment scheme.

V

Valuation

A method of assessing the value of company shares.

Venture capital

A form of private equity used to fund small businesses or start-ups that have growth potential.

Volatility

A measure of the rate and extent of changes in the value of an investment, over a period of time. The higher the volatility the riskier the investment tends to be.

W

Warrant

A derivative allowing the holder to buy or sell a security at a fixed price (although a time constraint applies).

With-profits investment bond

A lump-sum investment with a guaranteed capital return, along with the profits accumulated during the investment’s lifetime.

X

Y

Yield

The amount of income earned on an investment, usually expressed as a percentage.

Yield to maturity

See redemption yield.

Z