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Investment and financial terms explained
A

Term

Explanation

ABS

See Asset-backed security

Absolute (returns)

A measure of the gain or loss on an investment portfolio or security expressed as a percentage of invested capital. Absolute return differs from relative return because it looks at the return of a particular asset in isolation and does not measure it against a benchmark.

Absolute return strategy

Aim to achieve positive returns across all stock market conditions, regardless of whether prices are rising or falling. In managing such a strategy, investment managers employ a range of techniques including the short-selling of securities and the use of derivatives.

Accommodative (monetary policy)

A government policy of increasing the money supply in an economy in order to lower interest rates so that they reach a level which stimulates borrowing and economic growth.

Accountability (company)

Companies are accountable to their shareholders. In addition, certain companies (e.g. banks, investment firms and utilities) are responsible to their regulators in respect of their financial health and the levels of services to customers.

Accrued interest (bonds)

Interest that has accumulated, and is recognised from an accounting perspective, since the last coupon payment of a bond.

Accumulation Fund

Another term for defined contribution fund.

Accumulation shares

Units or shares where the net income from dividend payments is re-invested rather than distributed to unitholders / shareholders.

Active investment management (funds)

Where a fund manager seeks to enhance returns through effective stock selection, asset allocation and currency selection decisions.

Added value (funds)

The additional return over a benchmark that is delivered by a fund manager's skill, knowledge and expertise. Also see 'alpha'.

ADR

See American Depository Receipts

Adviser

A person or authorised representative of an organisation licensed by ASIC to provide advice on some or all of these areas: investing, superannuation, retirement planning, estate planning, risk management, insurance and taxation.

AGM

See Annual General Meeting

AI

See Accrued interest

All Ordinaries Index

An index measuring movements in the price (capital) of the major shares listed on the Australian Stock Exchange.

Allocated pension

A type of retirement income arrangement under which an individual invests a lump sum and then draws down an annual pension to a value that takes account of expected cash flow needs and life expectancy. If the drawdown is greater than investment earnings, then part of the initial lump sum is used to make up the difference. Unlike a traditional pension or annuity, an allocated pension can therefore provide the retiree with continual access to the capital sum invested. It also allows any balance to be passed on to beneficiaries upon the death of the individual concerned.

Alpha

The excess return of a fund relative to the return on its benchmark.

Alternative investments

Investments which do not fall into the traditional categories of bonds, cash and bank deposits, and equities. Examples include commodities, hedge funds and private equity.

American Depository Receipts

American Depository Receipts are a way for American investors to hold foreign stocks. They are issued certificates representing shares of non-US companies held on deposit and in trust. They are listed on US stock exchanges, or can be traded over the counter, and priced in US dollars.

Amortisation

An accounting term which permits a company to reduce the value of an intangible asset over its expected life.

Annual General Meeting

Public companies are required by law to hold an Annual General Meeting which all shareholders are entitled to attend. The business of AGMs, at which all shareholders may vote, includes the approval of the company's financial statements and the election/re-election of directors. AGMs also provide an opportunity for shareholders to question the directors on the company's performance and other issues.

Annual Management Charge (funds)

The annual fee levied on fund holders to cover the costs of managing the fund. It is calculated as a percentage of the value of the fund.

Annualised

A term applying to the conversion of a rate given over a specified period of time to an annual basis, i.e. an investment producing an actual return of 15% over five years would have produced an annualised return of 2.8%.

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. Each periodic payment received by the annuitant is a portion of the original lump sum, plus interest.

Appreciation

Generally, an increase in the value of an asset; (b) in terms of foreign exchange transactions, the rise in the value of a currency in relation to another currency or currencies.

ASEAN

The Association of South East Asian Nations. Established in 1967 with the objectives of improving economic co-operation between members. It comprises 10 countries of this rapidly growing region: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

Ask price

The price at which a security or asset is offered for sale to a buyer.

Asset

Any owned item of value.

Asset allocation (funds)

The apportionment of an investment portfolio between different asset classes/geographical markets. The proportion in each asset class will be determined by a fund's benchmark, its objectives and its risk profile.

Asset class

Broad groups of investments with similar characteristics. Examples include bonds, equities, property, cash and alternatives.

Asset consultant

A professional person engaged by investors, such as superannuation fund trustees, to advise on appropriate investment strategies, asset allocation, and selection of investment managers.

Asset price bubbles

The term 'bubble' refers to an episode where the price of a financial asset rises significantly, often in response to speculation, which results in the asset trading at a substantial premium to its intrinsic value. When the bubble bursts, the price of the financial asset falls sharply leaving investors with reduced wealth. This may impact discretionary spending and hinder economic growth. Central banks attempt to keep an eye on asset price appreciation and take measures to curb high levels of speculative activity which may make prices vulnerable to a sudden correction. The term 'bubble' was first used in 1720 in reference to the South Sea Bubble Crisis and more recently has been applied to Japan in the 1980s and even 'dot-com' companies in the late 1990s.

Asset value

The value of the assets underpinning a security. These may not be fully reflected in the price of a security. See also net asset value.

Asset-backed security

Often a bond, the value and cash flows of which are derived from a pool of specific assets, such as loans, mortgages and credit cards.

At the money (option)

An option is said to be 'at the money' if its exercise price equals the market price of the underlying asset.

Attribution analysis

The process by which the return on an investment portfolio is attributed to its manager's investment decisions. Typically performance is attributed to decisions regarding stock selection, asset allocation, and active market timing. An attribution analysis will show whether the managed decisions have added or detracted value in the portfolio.

Australian Competittion and Consumer Commission
Australian Prudential Regulation Authority

See Australian Prudential Regulation Authority

Australian Securities & Investments Commission

See Australian Securities & Investments Commission

Australian Securities Exchange

The principal exchange for trading in shares, bonds, and certain other securities in Australia. The Australian Securities Exchange Limited commenced operations in 1987, replacing the previous state-based exchanges. The ASX was initially established as a mutual organisation owned by individual stockbrokers and stockbroking firms, but in October 1996 its members elected to demutualise the Exchange and convert it into a listed company. The demutualisation took effect in October 1998. Web site: www.asx.com.au