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.

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.

Discount – Refers to a situation when a security is trading for lower than its fundamental or intrinsic value. The opposite of trading at a premium.

Diversification – A way of spreading risk by mixing different types of assets/asset classes in a portfolio, on the assumption that these assets will behave differently in any given scenario. Assets with low correlation should provide the most diversification.

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

Emerging market – The economy of a developing country that is transitioning to become more integrated with the global economy. This can include making progress in areas such as depth and access to bond and equity markets and development of modern financial and regulatory institutions.

Equity – A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.

Fixed interest rate – A fixed interest rate is a rate of interest charged on a debt, that will remain unchanged for a pre-agreed period, such as you might find on a mortgage or loan.
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.

Net assets (investment trusts) – Total assets minus any liabilities such as bank loans or creditors.

Net asset value (NAV) – The total value of a fund’s (or company’s) assets less its liabilities.

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

Premium – When the market price of a security is thought to be more than its underlying value, it is said to be ‘trading at a premium’. The opposite of discount.

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

Quantitative Tightening (QT) – A government monetary policy occasionally used to decrease the money supply by either selling government securities or letting them mature and removing them from its cash balances.

Return on equity (ROE) – A company’s net income (income minus expenses and taxes) over a specified period, divided by the amount of money its shareholders have invested. It is used as a measurement of a company’s profitability, compared to its peers. A higher ROE generally indicates that a management team is more efficient at generating a return from investment.

Share buybacks – Where a company buys back their own shares from the market, thereby reducing the number of shares in circulation, with a consequent increase in the value of each remaining share. It increases the stake that existing shareholders have in the company, including the amount due from any future dividend payments. It typically signals the company’s optimism about the future and a possible undervaluation of the company’s equity.

Share price – The price to purchase (or sell) one share in a company, not including fees or taxes. For investment trusts: The closing mid-market share price at month end.

Yield – The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price. For investment trusts: Calculated by dividing the current financial year’s dividends per share (this will include prospective dividends) by the current price per share, then multiplying by 100 to arrive at a percentage figure.