Active Investing
Active investing is an investment strategy involving the on-going buying and selling of securities in order to exploit market conditions. Active fund managers research various assets and try to predict the future value of investments. They then gather their best ideas and buy a mix of assets they think will outperform market index. As information and prices in the market change, active fund managers may change the mix of assets in their fund. Active managers charge high fees for their products (compared to passive managers) and their best ideas may or may not outperform the market index.

Alpha
Alpha is a measure of investment performance relative to a benchmark. It is the return on an investment that is not the result of systematic risks in the market.

Alternative Beta
Alternative beta (also called factor beta or smart beta) is an investment strategy that uses alternate index construction rules to market capitalisation indices. They focus on investing in factors that have historically been persistent drivers of market returns. Smart beta funds provide a low-cost and transparent way of accessing factors that provide excess returns over the long-term. They can be used as building blocks in constructing a diversified portfolio of assets.

Asset Class
An asset class is a general classification of a group of securities with similar characteristics. Examples of asset classes are equity, property, bonds and cash investments.

Balanced Fund
A balanced fund combines multiple asset class components, for example an equity component, a fixed income component and a property component, in a single portfolio. These funds provide investors with a mix of assets that provide stability through diversification. Higher risk balanced funds will have higher allocations to asset classes that have great growth potential, like equity. Low risk balanced funds will have higher allocations to asset classes that are conservative, like fixed income.

Bear Market
A market condition in which prices fall and widespread pessimism and selling causes the stock market’s downward spiral to be self-sustaining.

Benchmark
A benchmark is a standard against which investment performance can be measured. A commonly used benchmark is the market index.

Beta
Beta is a measure of systematic risk of a security or portfolio in comparison to the market as a whole. The beta of the market is considered to be 1. A security or portfolio with beta less than 1 is considered to less volatile than the market. A security or portfolio with beta of greater than 1 is considered to more volatile than the market.

Bond
A bond is a debt security issued by a corporation or government in exchange for the money the bondholder lends it. The issuer pays back the loan by a specified date and makes interest payments until that date. Bonds are issued to raise money for projects and activities.

Building Blocks
Building blocks are asset components that can be used to construct an investment portfolio. Smart beta funds and index tracker funds are often used as building blocks.

Bull Market
A market condition in which prices rise and investor confidence, optimism and buying causes the stock market’s return persistency to be self-sustaining.

Cash Investment
A cash investment is a short term debt security that is repaid in less than one year. It is also known as a money market instrument.

Closing Price
The closing price is the final price at which a security is traded on a given trading day.

Commodities
A commodity is a basic good used that can be bought and sold and is interchangeable with others of the same type. Examples include gold, oil, grains, metals, and natural gas.

Core-Satellite
Core-satellite is an investment tool used to construct portfolios that minimise costs, tax liabilities, and risk while providing an opportunity to outperform the broad market as a whole.

Correlation
Correlation in investments is a statistic that measures the degree to which two assets move in relation to each other. Positive correlation implies that as one asset moves up the other moves up. Negative correlation implies that as one asset moves up the other moves down.

Cyclical Investments
A cyclical investment is an investment whose price moves in up and down cycles over time, for example securities that rise and fall with the business cycle, or investment styles that move in and out of favour over time.

Diversification
Diversification is the spreading of risk in an investment portfolio by investing in a variety of securities, asset classes, sectors, factors, or geographical regions. The aim of diversification is to manage risk by increasing the likelihood that gains from one investment will offset losses from another investment and thus reduce the risk of large losses in the investment portfolio.

Derivative
A derivative is an asset with a price that is dependent on one or more underlying assets. Common underlying assets include equity, bonds, commodities, currencies, interest rates, and market indices. A derivative’s value is linked to fluctuations in the underlying asset. Derivatives can be traded over-the-counter or on an exchange.

Equity
Equity is a security that represents ownership in a company. It is also known as a stock or a share.

Exchange
An exchange is a market place in which securities, commodities, derivatives and other financial instruments are traded.

Exchange-Traded Fund (ETF)
An ETF is a security that tracks an index or a commodity (like gold or oil) or a basket of assets (like an index fund). ETFs are traded like a stock on an exchange and their prices change throughout the day as they are bought and sold.

Factor Investing
Factor investing is an investment strategy in which securities are chosen based on attributes that provide higher returns. Common factors used in factor investing are value, momentum, size, quality and low risk.

Fixed Income
Fixed income investments include bonds and cash investments.

Fundamental Value
Fundamental value is the value of a company or asset based on the underlying aspects of the business, often in terms of metrics from financial statements, like cash flow, earnings and dividends. This value is often different to the trading price of the asset.

Goal-Based Investing

Goal-based investing is a relatively new approach to investing that focuses on the objective of attaining specific goals. It is also called outcome-based investing.

Hedge
A hedge is an investment strategy used to reduce the risk adverse price movements in an asset. It is similar to taking out an insurance policy and often involves taking an offsetting position in a related asset.

Index
An index is the aggregate value of a basket of securities representing a particular market or a segment of it. It is expressed against a base value from a specific date, and can therefore help investors track changes in market values over long periods of time. A market index is a commonly benchmark for securities markets. For example the S&P 500 and the All Bond Index are common benchmarks for the US stock market and South African bond market respectively.

Index Tracker Fund
An index tracker fund tracks an index with the aim of replicating the performance of that index. Index tracker funds commonly track equity indices, bond indices and property indices. They can also track customised smart beta indices.

Investment Vehicle
An investment vehicle is a product used by investors with the intention to gain positive returns. Examples of investment vehicles are exchange-traded funds, unit trusts, index tracker funds.

Liquidity
Liquidity is the degree to which an asset can be quickly bought and sold in the market without affecting the asset’s price.

Listed Property
Listed property are companies that develop and manage properties (or real estate) of various types, and are listed on the stock market. Because listed property distributions are based on steady rental incomes that increase over time, they provide a higher level of income than other listed companies. This gives listed property the characteristics of both equities and bonds, making it a good asset class diversifier.

Management Fee
A management fee is a charge levied by an investment manager for managing an investment fund.

Market Beta
Beta is a measure of systematic risk of a security or portfolio in comparison to the market as a whole. The beta of the market is considered to be 1. A security or portfolio with beta less than 1 is considered to less volatile than the market. A security or portfolio with beta of greater than 1 is considered to be more volatile than the market.

Market Capitalisation
Market capitalisation is the total value of a company’s outstanding shares. It represents the size of a company. Companies can be ranked as large-cap, mid-cap or small-cap, to indicate their market capitalisation.

Market Cycle
Market cycles are trends that may exist in the market, where some securities, asset classes, sectors or industries may outperform others.

Market Price
The market price of a security is the most recent price at which the security has traded.

Market Risk
Market risk is the risk of experiencing losses due to factors that affect the overall performance of the financial markets. It is also called systematic risk.

Money Market Instrument
A money market instrument is a short term debt security that is repaid in less than one year. It is also known as a cash investment.

Mutual Fund
A unit trust is an investment vehicle made up of a pool of funds from many investors. Investment professionals invest the funds in securities to produce capital gains and income for the fund’s investors, in line with specified objectives. Each investor is called a unit holder and participates proportionally in the gain or loss of the fund. They are called mutual funds in the United States.

Net Asset Value (NAV)
Net asset value is the value per unit of a unit trust or exchange-traded fund. It is calculated daily based on the closing price of the securities in the fund’s portfolio.

Outcome-Based Investing
Outcome-based investing is a relatively new approach to investing that focuses on the objective of attaining specific goals. It is also called goal-based investing.

Over-The-Counter (OTC)
Over-the-counter is a security traded outside of an exchange.

Passive Investing
Passive investing is an investment strategy that replicates the performance of the market index and keeps the amount of trading to a minimum. It aims to minimise trading and therefore reduce the drag on performance from trading costs and fees.

Portfolio
A portfolio is the grouping of all securities held by investors and/or managed by investment professionals.

Primary Listing
A primary listing is the main exchange where a company’s shares are traded. A share may also trade on other exchanges to increase liquidity and raise more capital.

Private Equity
Private equity is capital that is invested in a company or companies not listed on a public exchange.

Property
Listed property are companies that develop and manage properties (or real estate) of various types, and are listed on the stock market. Because listed property distributions are based on steady rental incomes that increase over time, they tend to provide a higher level of income than other listed companies. This gives listed property the characteristics of both equities and bonds, making it a good asset class diversifier.

Real Estate
Listed property are companies that develop and manage properties (or real estate) of various types, and are listed on the stock market. Because listed property distributions are based on steady rental incomes that increase over time, they tend to provide a higher level of income than other listed companies. This gives listed property the characteristics of both equities and bonds, making it a good asset class diversifier.

Real Yield
Real yield is the income return on an investment, which is adjusted for changes in prices due to inflation. It is usually expressed as an annual percentage rate.

Risk
Risk is the possibility of losing some or all of the original investment. It is usually measured by calculating the volatility of the past returns of the investment. A high volatility indicates a high level of risk.

Risk-Adjusted Return
The risk-adjusted return is how much return an investment has made relative to the amount of risk the investment has taken over a given time period. Investments with a higher risk-adjusted return earn more return per unit risk and are therefore more desirable.

Risk-On Risk- Off
Risk-on risk-off is the change in investors’ appetite for risk that rises and falls over time in response to the global economy. Risk-on is a period when risk is perceived as low and investors are attracted to higher-risk investments. Risk-off is a period when risk is perceived as high and investors are attracted to lower-risk investments.

Risk Premium
A risk premium is the excess return that an investment is expected to provide as compensation for taking on more risk.

Security
A security is a financial instrument with monetary value.

Share
A share is a security that represents ownership in a company. It is also known as a stock or equity.

Smart Beta
Smart beta (also called factor beta or alternative beta) is an investment strategy that uses alternate index construction rules to market capitalisation indices. They focus on investing in factors that have historically been persistent drivers of market returns. Smart beta funds provide a low-cost and transparent way of accessing factors that provide excess returns over the long-term. They can be used as building blocks in constructing a diversified portfolio of assets.

Specific Risk
Specific risk is the risk that can affect a specific company or groups of companies. Specific risk can be reduced through diversification.

Standard Deviation
Standard deviation (also called Volatility) is a statistical measure of the dispersion of returns for a given security. It therefore represents the amount of uncertainty or risk about the size and frequency of changes in a security’s value. Securities with higher volatility can potentially take on a large range of values that can dramatically change over a short time period in either direction (positive or negative). High volatility securities are therefore considered to be riskier. Volatility can also be calculated on an index or a portfolio.

Stock
Stock is a security that represents ownership in a company. It is also known as a equity or a share.

Stock Market
The stock market is the collection of markets where securities are issued and traded, either through formal exchanges, or over-the-counter markets.

Systematic Risk
Systematic risk is the risk of experiencing losses due to factors that affect the overall performance of the financial markets. It is also called market risk.

Total Expense Ratio (TER)
The TER is the charges paid by the fund for management and operating costs incurred in the administration of the fund. The TER is expressed as a percentage of the daily net asset value (NAV) of the fund.

Tracking Error
Tracking error is a measure of portfolio risk against a benchmark. It is measured as the standard deviation of the difference between the returns of an investment and its benchmark.

Transaction Costs (TC)
The TC is the costs incurred by the fund in the buying and selling of underlying assets. The TC is expressed as a percentage the daily net asset value (NAV) of the fund.

Unit Trust
A unit trust is an investment vehicle made up of a pool of funds from many investors. Investment professionals invest the funds in securities to produce capital gains and income for the fund’s investors, in line with specified objectives. Each investor is called a unit holder and participates proportionally in the gain or loss of the fund. They are called mutual funds is the US.

Volatility
Volatility (also called the standard deviation) is a statistical measure of the dispersion of returns for a given security. It therefore represents the amount of uncertainty or risk about the size and frequency of changes in a security’s value. Securities with higher volatility can potentially take on a large range of values that can dramatically change over a short time period in either direction (positive or negative). High volatility securities are therefore considered to be riskier. Volatility can also be calculated on an index or a portfolio.

Yield
Yield is the income return on an investment. It is usually expressed as an annual percentage rate, calculated using the investment’s cost and current market value. Examples of yield are the interest or dividends received from holding a particular security. Yields can be known, for example the yields on zero coupon bonds. Yields can also be anticipated (called implied yields), for example the yields of securities that experience fluctuations in value. Listed yields estimate the future potential of an investment with their values tied to the risk of the associated security. The higher the risk is considered to be, the higher the associated yield potential.