Balance sheet
A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.

Basis point (bp)
One basis point equals 1/100 of a percentage point. 1 bp = 0.01%, 100 bps = 1%.

Benchmark
A standard (usually an index) that an investment portfolio’s performance can be measured against. For example, the performance of a UK equity fund may be benchmarked against the FTSE 100 Index, which represents the 100 largest companies listed on the London Stock Exchange.

Bond yield
The level of income on a security expressed as a percentage rate. For a bond, this is calculated as the coupon payment divided by the current bond price. There is an inverse relationship between bond yields and bond prices. Lower bond yields mean higher bond prices, and vice versa.

Dividend
A variable discretionary payment made by a company to its shareholders.

Earnings per share (EPS)
EPS is the bottom-line measure of a company’s profitability, defined as net income (profit after tax) divided by the number of outstanding shares.

Hedge
A trading strategy that involves taking an offsetting position to another investment that will lose value as the primary investment gains, and vice versa. These positions are used to reduce or manage various risk factors and limit the probability of overall loss in a portfolio. Various techniques may be used, including derivatives.

Index
A statistical measure of group of basket of securities, or other financial instruments. For example, the S&P 500 Index indicates the performance of the largest 500 US companies’ stocks. Each index has its own calculation method, usually expressed as a change from a base value.

Inflation
The rate at which the prices of goods and services are rising in an economy. The Consumer Price Index (CPI) and Retail Price Index (RPI) are two common measures. The opposite of deflation.

Investment trust
An investment trust is a form of investment fund, specifically a publicly traded collective investment scheme that invests its shareholders’ money in the shares of other companies.

Net asset value (NAV) total return (investment trusts):
The theoretical total return on shareholders’ funds per share reflecting the change in Net Asset Value (NAV) assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in discounts/premiums.

Overweight
Having a relatively large exposure to an individual security, asset class, sector, or geographical region than a relevant benchmark, such as an index.

Portfolio
A grouping of financial assets such as equities, bonds, commodities, properties or cash. Also often called a ‘fund’.

Share price total return (investment trusts)
The theoretical total return to the investor assuming that all dividends received were reinvested in the shares of the company at the time the shares were quoted ex-dividend. Transaction costs are not taken into account.

Valuation metrics
Metrics used to gauge a company’s performance, financial health and expectations for future earnings, eg. price to earnings (P/E) ratio and return on equity (ROE).