Glossary

A

Absolute return

The return, i.e. the absolute gain or loss, that an investment generates over a specific period of time. An absolute-return investment strategy aims to achieve a positive return over a set time frame and in all market conditions, although this is never guaranteed.

Accumulation

Increasing the position size in one asset, increasing the number of assets owned/positions, or an overall increase in buying activity in an asset.

Active management

A process whereby an investment professional actively makes buy, hold and sell decisions and aims to outperform the overall market.

Advocacy

The process by which individual shareholders, or a group of shareholders, seek to partner with relevant stakeholders, including policymakers, on systemic issues which present a material risk that may crystallise in the medium to long term.

Alpha

The excess return of a portfolio relative to the return of its benchmark.

Alternatives

Financial assets that do not fall into one of the conventional investment categories such as equities or bonds.

Annual management charge (AMC)

An ongoing fee paid to the management company for managing an investment, usually charged as a percentage of the investment.

Asset(s)

In this context, investments held in a portfolio, for example stocks, bonds, property and cash.

Asset allocation

An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon.

Asset-backed securities (ABS)

Pools of loans packaged and sold as securities – a process known as ‘securitisation’. Typically, the assets backing these are home mortgages or credit card receivables.

Asset class

A grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations, such as equities or fixed income.

B

Basic materials

The sector of companies involved in the discovery, development and processing of raw materials. The sector includes the mining and refining of metals, chemical products and forestry products.

Basis points (bps)

Refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001.

Bear market

A bear market is a condition in which securities’ prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

Bear/bearish

An investor who believes the price of a stock or market will decrease over time.

Benchmark

A baseline for comparison against which a portfolio can be measured.

Bond

A loan of money by an investor to a company or government for a stated period of time in exchange for a fixed interest-rate payment and the repayment of the initial amount at its conclusion.

Bull market

A market in which the prices of securities are rising, often characterised by investor optimism and confidence in continuing strong returns.

Bull/bullish

An investor who is typically optimistic that the price of a security or market will rise.

Bund

Bund is the name given to a federal bond issued by the German government.

Buyback

A company purchasing its own shares on the market, which can often lift its stock price.

C

Call option

An option contract giving the owner the right, but not the obligation, to buy a specified amount of an underlying security at a specified price within a specified time period.

Call

A call is a clause that enables the issuer of a bond to redeem it early, ahead of its original maturity date.

Capital

Resources or money used or available for use in the production of more wealth.

Capital growth

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

Capital loss

When an asset is sold for less than the price it was purchased for.

Capital preservation

A conservative investment strategy that promotes preservation of capital and preventing loss in a portfolio.

Capital return

Payment, or gain, received from an investment.

Cash flow

The net amount of cash and cash equivalents being transferred in and out of a company.

Commodity

An asset in the form of a raw material that can be bought and sold such as gold, oil, coffee, and wheat.

Compound(ing)

The ability of an asset to generate earnings which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.

Consumer cyclicals

A category of stocks that rely heavily on the business cycle and economic conditions. Consumer cyclicals include industries such as automotive, housing, entertainment and retail.

Consumer discretionary

Goods and services considered non-essential by consumers but desirable if their income is sufficient to purchase them.

Consumer staples

Goods and services that people are unable or unwilling to cut out of their budgets regardless of their financial situation.

Consumer price index (CPI)

An index used to measure inflation, based on the prices of a basket of goods and services, meant to be representative of those we typically spend our money on.

Contingent convertible bond

A type of fixed-income instrument that is convertible into equity (company shares) if a pre-specified trigger event occurs.

Convertible bond

A convertible bond is a fixed-income debt security that yields interest payments but can be converted into a predetermined number of equity shares. The conversion from the bond to stock can be done at certain times during the bond’s life and is usually at the discretion of the bondholder.

Correlation/correlated

A measure of the degree to which two variables move in relation to each other.

Corporate bond

A loan made to a company for a fixed period by an investor, for which they receive a defined return.

Coupon

The interest paid on a bond by its issuer for the term of the security.

Credit

In an investment context, credit is synonymous with corporate bonds – debt issued by companies.

Credit default swap (CDS)

A credit default swap is a financial contract that allows an investor to ‘swap’ or offset their credit risk with that of another investor. For example, if a lender is worried that a borrower is going to default on a loan, the lender could use a CDS to offset or swap that risk. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse the lender in the case the borrower defaults.

Credit market

Refers to the market through which companies and governments issue debt (bonds) to investors (also called the bond or debt market).

Credit rating

An evaluation of the creditworthiness of a borrower, such as a particular company or government. A company with debt rated AAA is considered to be more creditworthy than one with debt which is rated BBB.

Credit risk

The possibility of a loss resulting from a borrower’s failure to repay a loan or meet contractual obligations.

Credit spread

The difference in yield between two bonds of similar maturity but different credit quality; for example, if the 10-year Treasury (US government debt) is trading at a yield of 6% and a 10-year corporate bond is trading at a yield of 8%, the corporate bond is said to offer a 200-basis-point spread over the Treasury. Widening credit spreads indicate growing concern about the ability of borrowers to service their debt. Narrowing credit spreads indicate improving private creditworthiness.

Cryptocurrency

A digital currency in which transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority.

Current account

An economy’s current account is an important indicator of its health. It is defined as the sum of the balance of trade (goods and services exports minus imports), net income from abroad, and net current transfers.

Cyclical/cyclicality

A stock or industry deemed sensitive to the wider economy. As such its revenues are generally higher in periods of economic prosperity and expansion and lower in periods of economic downturn and contraction.

D

Default

The failure to pay interest or principal on a loan or security when due.

Defensive

A stock or industry considered less sensitive to the wider economy.

Derivatives

Financial contracts, set between two or more parties, that derive their value from an underlying asset, group of assets or benchmark.

Developed markets

Countries that are most developed in terms of their economy and financial markets.

Disinflation/disinflationary

A decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in an economy.

Diversified/diversification/diversifiers

Investing in a variety of companies or financial instruments, which typically perform differently to one another.

Dividend(s)

A sum paid regularly by a company to its investors as a reward for holding its shares.

Dividend payout ratio

Shows how much of a company’s earnings, after tax, are paid to shareholders in the form of dividends.

Dividend yield

Income received from an investment, expressed as a percentage based on the investment’s costs, its current market value or its face value.

Dove/dovish

A dove is an economic policy advisor who promotes monetary policies that involve low interest rates, based on the belief that low interest rates increase employment. A dovish monetary policy stance typically involves lowering interest rates to encourage borrowing and spending.

Drawdown

The extent to which an investment declines from its highest peak, expressed as a percentage.

Duration

A measure of the sensitivity of a fixed-income security to a change in interest rates. The longer a bond’s duration, the more sensitive it is to interest-rate movements.

E

Earnings

A company’s earnings are its net income after tax, and therefore represent its profits.

Economically sensitive

A stock or industry deemed sensitive to the wider economy. As such its revenues are generally higher in periods of economic prosperity and expansion and lower in periods of economic downturn and contraction.

Emerging markets

Countries in the process of becoming developed economies.

Emerging market bonds

Fixed-income debt issued by countries with developing economies as well as by corporations within those nations.

Engagement

An active dialogue between investors and companies on issues that may affect such companies, including ESG-related risks and opportunities, providing companies with insights into investors’ expectations around corporate behaviour or management of specific issues.

For more details about Newton’s approach to engagement, see Our approach to engagement.

Environmental, social and governance (ESG) analysis

The analysis of a business’s impact on the environment and society as well as the quality of its governance.

Equity

Shares issued by a company, representing an ownership interest.

Equity income

Primarily refers to income from stock dividends, which are cash payments from companies to their shareholders as a reward for investing in their stock.

ESG integration

The incorporation and analysis of the financial implications of environmental, social and governance (ESG) issues into the investment decision-making process.

For more information about Newton’s approach to ESG integration, see our stewardship and sustainability policy.

Eurozone

The economic region that contains all members of the European Union that use the euro as currency.

Exchange-traded commodity (ETC)

A commodity, or basket of commodities, traded on a stock exchange.

Exchange-traded fund (ETF)

A type of investment fund that is traded on a stock exchange and typically tracks a stock index, a commodity, bonds, or a basket of assets.

F

Financials

A sector made up of companies that provide financial services.

Fiscal/fiscal policy

Government policy on taxation, spending and borrowing.

Fiscal stimulus/stimulus packages

Government policy on taxation, spending and borrowing designed to stimulate the economy.

Fiscal year

The 12-month period that a company used for accounting purposes and for preparing financial statements.

Fixed income

Broadly refers to those types of investment security that pay investors fixed interest or dividend payments until their maturity date.

Floating rate notes (FRNs)

Fixed-income securities whose interest (income) payments are periodically adjusted depending on the change in a reference interest rate.

Frontier market(s)

Frontier markets are less advanced economies in the developing world and are less established than an emerging market. Many frontier markets do not have developed stock markets, and while they are smaller, less accessible and riskier than emerging markets, they are still considered viable investments.

Fundamentals (company)

A company’s fundamentals are factors such as its business model, earnings, balance sheet and debt.

Fundamentals (economic)

Economic fundamentals are factors such as inflation, employment and economic growth.

Futures

Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset, and they are standardised to facilitate trading on futures exchanges.

G

G7

A group of seven countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) with the largest advanced economies in the world.

Geopolitics

Geographic influences on power relationships in international relations.

Gilt

Fixed-income security issued by the UK government.

Government bonds

A loan of money by an investor to a government for a stated period of time in exchange for a (generally) fixed rate of interest and the repayment of the initial amount at its conclusion.

Green bond

Fixed-income financial instruments that can generate positive climate or environmental benefits.

Green gilt

Fixed-income security issued by the UK government that can generate positive climate or environmental benefits.

Gross domestic product (GDP)

A monetary measure of the market value of all goods and services produced by a country or region in a given period of time.

Growth bias or growth investing

Growth investing is an investment approach, style or strategy focused on or biased to increasing an investor’s capital.

Growth stocks

Companies expected to grow sales and earnings at a faster rate than the market average.

H

Hard currency

Hard currencies are issued by developed countries that have a strong industrial economy accompanied by a stable government. Generally used to refer to the UK pound sterling, the euro and the US dollar.

Hawk/hawkish

Policymakers who support high interest rates (often to keep inflation in check) are commonly described as hawks, while those who favour low interest rates are labelled doves.

Hedge

An investment with the aim of offsetting potential losses incurred by a related investment.

High-yield corporate bonds

Corporate bonds with a low credit rating that are considered to be at higher risk of default than better quality securities but have the potential for higher rewards.

I

Income stocks

Stocks that offer regular and steady income, usually in the form of dividends, over a period of time.

Idiosyncratic risk

Risk specific to an individual asset or stock.

Impact bonds

A type of fixed-income security in which the proceeds raised are dedicated solely to projects that will meet environmental or social criteria and aim to achieve specific results.

Index

A portfolio of investments representing a particular market or a portion of it. For example, the FTSE 100 is an index of the shares of the 100 largest companies on the London Stock Exchange.

Index-linked bonds

Fixed-income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as inflation-linked bonds.

Index-linked gilts

UK government bonds where both the value of the loan and the interest payments are adjusted in line with inflation.

Industrials

The industrial goods sector includes stocks of companies that mainly produce capital goods used in manufacturing, resource extraction and construction.

Inflation

The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier.

Inflation hedging

An investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value owing to rising prices either macroeconomically or owing to inflation.

Inflation-linked securities

Fixed-income securities where both the value of the loan and the interest payments are adjusted in line with inflation over the life of the security. Also referred to as index-linked bonds.

Inflation protection

Investments that provide a hedge against the rise in prices of goods and services over time. An inflation-protected portfolio, for example, will have assets that should perform well in times of higher inflation. An inflation-protected investment will contain some type of adjustment mechanism that periodically ratchets the payouts up and down according to the rate of inflation.

Initial public offering (IPO)

The first equity sale by a private company to the public.

Interest-rate risk

Refers to the chance that investments in bonds will decrease as the result of unexpected interest-rate changes, also known as market risk.

Investment-grade corporate bonds

Corporate bonds with a medium or high credit rating that are considered to be at lower risk from default than those issued with lower credit ratings.

Issuer

A legal entity that develops, registers and sells securities.

L

Large cap

This refers to a company with a very large market capitalisation value. This is based on the market value of a publicly traded company’s outstanding shares.

Leverage

When referring to a company, leverage is the level of a company’s debt in relation to its assets. A company with significantly more debt than capital is considered to be leveraged. It can also refer to a portfolio that borrows money or uses derivatives to magnify an investment position.

Liquid/liquidity

The degree to which an asset or security can be quickly bought or sold in the market without affecting its price. Market liquidity refers to the extent to which a market, such as a country’s stock market, allows assets to be bought and sold at stable prices.

Local currency

A currency that can be spent in a particular geographical locality at participating organisations.

Long-dated bond

Long-dated bonds offer a maturity date far out on the investment horizon.

Long

Refers to ownership of a security held in the expectation that the security will rise in value.

Long-short

An investment strategy that involves buying equities expected to increase in value (long) and uses a technique to profit in other equities if they decrease in value (short).

M

Macroeconomics

A branch of economics that studies the performance and behaviour of an economy, including factors such as economic output, unemployment, inflation and investment.

Margin(s)

Represents what percentage of a business or company’s sales has turned into profits.

Maturity date

The date on which the initial investment amount of a fixed-income security is due to be repaid to the holder of the security.

Merger and acquisition(s) (M&A)

The buying, selling, dividing and combining of different companies.

Mid cap

Companies with a market capitalisation of between $2 billion and $10 billion.

Monetary easing

Monetary policy in which a central bank lowers interest rates and deposit ratios to make credit more easily available.

Monetary (policy)

A central bank’s regulation of money in circulation and interest rates.

Monetary stimulus

An attempt by a government to make the economy grow faster by increasing the money supply (the amount of money in the economy) or lowering interest rates.

Monetary tightening

Monetary policy in which a central bank increases interest rates when an economy is growing too fast or prices are rising too quickly.

Multi-asset

An investment containing more than one asset class, such as cash, equities or bonds.

N

Net zero

Cutting greenhouse-gas emissions to as close to zero as possible, with any remaining emissions reabsorbed from the atmosphere, by oceans and forests, for instance.

Non-cyclicals

A goods and services economic sector containing companies that meet consumers’ basic needs and so are unlikely to be heavily influenced by economic cycles. They include companies engaged in fishing and farming operations; the processing and production of food, beverages and tobacco; manufacturers of household and personal products; and providers of personal services.

Non-fungible token

Cryptographic assets on a blockchain with unique identifiers to distinguish them from each other.

O

Ongoing charges figure (OCF)

The amount an investor will pay for the service provided by a fund. The OCF is made up of the manager’s fees along with other costs, such as administration. It’s meant to be used as a standardised method to compare the costs of funds.

Option

Financial contracts that offer the right, but not the obligation, to buy or sell an asset at a given price on or before a given date in the future.

Outperformance

To have a greater performance/return than a comparator such as a benchmark.

Overweight

Having more invested in a company, region or sector than the benchmark or comparative product.

P

Passive

An investment strategy which seeks to replicate the behaviour of a specified index.

Perpetual bonds

Bonds with no maturity date. Although perpetual bonds are not redeemable, they pay a steady stream of interest with no redemption date.

Portfolio

A collection of investments.

Put option

An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time period.

Q

Quantitative easing

A monetary policy whereby a central bank buys predetermined amounts of government bonds or other financial assets in order to stimulate the economy and increase liquidity.

Quantitative tightening

When central banks raise interest rates or sell securities on the open market to decrease the money in circulation.

R

Real assets

Real assets are tangible physical assets (e.g. a property or land). Real assets include precious metals, commodities, infrastructure, real estate, agricultural land, machinery and oil.

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months; some countries define it as negative economic growth for two consecutive quarters.

Relative return

The return an asset achieves over a period of time compared to a benchmark.

Relative value

The attractiveness of one financial instrument relative to another, measured in terms of risk, liquidity, and return.

Responsible investing

The overall strategy and practice of active ownership and incorporating ESG factors into investment decisions.

For more information about Newton’s approach to responsible investment, see our stewardship and sustainability policy.

Return

The gain or loss from an investment over a stated period of time, expressed in either percentage or cash terms.

Revenues

Often referred to as sales, revenues are the income received from a company’s normal business operations and other business activities.

Risk-adjusted returns

A calculation of the profit or potential profit from an investment that takes into account the degree of risk that must be accepted in order to achieve it.

Risk asset

Refers to assets that have a significant degree of price volatility, such as equities, commodities, high-yield bonds and currencies.

Risk premia strategies

Investment strategies that aim to capture the risk premium associated with market pricing, where ‘risk premium’ refers to the excess return that can be expected from an investment above the return which could be generated from a ‘risk-free’ asset.

S

‘Safe haven’ assets

Refers to assets that investors perceive to be relatively safe from suffering a loss in times of market turmoil.

Sectors

An area of the economy in which businesses share the same or related business activity, product, or service.

Sector allocation

The investment of certain proportions of a portfolio in certain specific sectors.

Secular growth

When a growth company’s earnings remain constant regardless of other trends occurring within the market.

Securitised bonds

Securitisation is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling their related cash flows to third-party investors as securities.

Security

A tradable financial asset such as a share in a company or a fixed-income security, also known as a bond.

Security selection

An active portfolio management technique that focuses on advantageous selection of particular securities rather than on broad asset-allocation choices.

Share

A share, also known as equity, is a security representing the ownership of a fraction of a company listed on the stock market.

Short

A way for a portfolio manager to express their view that the market or security might fall in value.

Short-dated

A description added to certain income-producing assets to highlight the fact the maturity date is very near or soon.

Small cap

This refers to a company with a small market capitalisation value. This is based on the market value of a publicly traded company’s outstanding shares.

Social bond

Social bonds are fixed-income instruments whose ‘use of the proceeds’ are entirely dedicated to projects or activities that promote improved social welfare and positive social impact directly for vulnerable, marginalised, underserved, or otherwise excluded or disadvantaged populations.

SONIA (Sterling Overnight Index Average)

An index based on actual transactions and which reflects the average of the interest rates that banks pay to borrow sterling overnight from other financial institutions and other institutional investors.

Spread

The difference between the yield of a corporate bond and a government bond with the same maturity. Yield refers to the income received from an investment and is expressed as a percentage of the investment’s current market value.

Stagflation

An economic environment characterised by high inflation, high unemployment, and slow or negative real economic growth.

Standard deviation

A statistical measure of dispersion of a set of data from its mean.

Stewardship

The responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries, leading to sustainable benefits for the economy, the environment and society. Good stewardship via active ownership seeks to protect and increase the value of investments over time.

Stock

Also known as equity, a stock is a security that represents the ownership of a fraction of the issuing corporation.

Stock selection

The process of determining which financial securities are included in a specific portfolio.

Sub-investment grade

Fixed-income securities issued with a low credit rating. They are considered to be at higher risk of default.

Subordinated debt

A loan or security that ranks below other loans or securities with regard to claims on assets or earnings.

Sustainability

Meeting the needs of the present without compromising the ability of future generations to meet their own needs. For companies, this is likely to mean seeking to do business without negatively affecting the environment, communities or society as a whole.

Sustainable bonds

Fixed-income financial instruments whose proceeds are applied to finance or refinance a combination of both green and social projects.

Sustainable investing

Balances traditional investing with ESG insights to improve long-term outcomes. Sustainable investing seeks not only a financial return but also positive outcomes for the environment and/or society.

For more information about Newton’s approach to sustainable investing, see our stewardship and sustainability policy.

T

Tapering

The reduction of a central bank’s quantitative easing or bond-buying programmes.

Total return

The term for the gain or loss derived from an investment over a particular period. Total return includes income (in the form of interest or dividend payments) and capital gains.

Treasury

US government debt security with a maturity of more than 10 years. Treasury bonds make interest payments semi-annually.

U

Underperformance

To have a lower performance/return than a comparator such as a benchmark.

Underweight

Having less invested in a company, region or sector, than the benchmark or comparative product.

Unhedged

A position not balanced by a compensating contract or transaction.

V

Value companies

Companies that are considered to be well run and that trade at a discount.

Valuation

A quantitative process of determining the fair value of an asset, investment or company.

Volatility

Large and/or frequent moves up or down in the price or value of an investment or market.

W

Weighting

The exposure to a company, sector or market in a portfolio, usually expressed as a percentage.

Y

Yield

Income received from investments, either expressed as a percentage of the investment’s current market value, or dividends received by the holder.

Yield curve

A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates.