Get to grips with some of the common financial terms to do with investing.



Association of Investment Companies. This is a collective association for UK investment trust companies.


Alternative Investment Market (AiM) is the London Stock Exchange's global market for smaller, growing companies.

All cap

A Fund that invests in equities without regard to whether a company is characterised as small, medium or large.

Asset allocation

The distribution of assets across a variety of geographic regions, asset classes or sectors.

Asset class

A group of securities that exhibit similar characteristics, behaves similarly in the marketplace and is subject to the same laws and regulations. The three main asset classes are equities or stocks; fixed income or bonds; and cash or money market instruments. Some investment professionals also add real estate and commodities.


The investments and cash held by an investment trust company.


Bank of England

The UK’s central bank, responsible for the country’s monetary policy.

Bear market

A market in which prices fall over an extended period.


A target against which investment performance is measured. A benchmark is usually an index or the average performance of other similar funds.

Bid price

Investment trust shares are sold via the stock exchange at the bid price. This price is determined by supply and demand.


The shares in companies with the highest status as investments.


A form of loan paying a generally agreed rate of interest over a fixed term, with the principal paid at maturity. Bonds may be issued by governments or companies. Bonds can generally be traded on the stock market and therefore may trade above or below their issue price.

Bond yield

The amount of return an investor earns on a bond holding.

Bull market

A market in which prices rise over an extended period.


Investment trusts have the ability to buy-back a certain proportion of their shares to improve shareholder value – usually to narrow the discount. Shareholders will be asked to vote each year so that the fund manager can exercise this right as and when it is deemed suitable.


Capital Gains Tax (CGT)

A tax charged on gains arising from the sale of assets. There is a CGT exemption limit set each tax year and any gains up to that will not be taxable.

Capital structure

The different amounts and types of ordinary and preference shares which are in issue.

Capital value

In real estate investing, the value of a freehold or leasehold asset.

Cash investments

Relatively safe, liquid assets. Cash investments include Treasury bills, money-market funds, and short-term certificates of deposits.

Closed-ended investment company

A collective investment scheme, such as an investment trust, with a fixed number of shares. Closed-ended investment companies are traded on the stock exchange.

Collective investment scheme

An investment scheme in which money from more than one investor is pooled into a single fund or trust. Unit trusts, investment trusts, and open-ended investment companies (OEICs) are all types of collective investment schemes.

Corporate bond

A form of loan issued by a company in order to raise capital and an alternative to issuing stock through a rights issue. Bonds pay a fixed rate of interest over a fixed term, with the principal repaid at maturity.


The interest rate stated on a bond when it’s issued. Typically, coupons are paid six-monthly.


Consumer Price Index is a measure of inflation. The index measures the cost of all goods and services to a typical consumer.

Credit rating

An independent assessment of a company’s or government’s ability to pay its debt. Credit ratings are provided by rating agencies; changes to a company’s or government’s rating can dramatically affect the price of its bonds.



Buying and selling of shares


A contract between two parties that derives its value from the performance of the underlying entity. This underlying entity can be an asset, index or interest rate.

Diluted Net Asset Value

A method of calculating the net asset value of a company after taking into consideration any outstanding convertible loan stock, warrants or options which are assumed to be exercised by the holders, so increasing the number of shares among which the assets are divided.


When the share price is lower than the Net Asset Value (NAV), it is referred to as trading at a discount. The discount is expressed as a percentage of the Net Asset Value.


Income paid to shareholders by the company they invest in.

Dividend yield

The annual dividend income per share received from a company divided by its current share price. Put simply - how much income you're getting out of the company for the capital you've got locked up in it.



Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company's operating performance.

Economic cycle

The recurring and fluctuating levels of economic activity an economy experiences over an extended period of time.

Emerging markets

Countries with a low per-head income compared to the developed world but with a functioning stock exchange. The potential for rapid growth makes emerging markets attractive for investors prepared to accept a higher level of risk. Emerging markets include Brazil, Russia, India and China (see BRIC); others of significance include Mexico, Indonesia, South Africa, Poland and South Korea.


Shares in a company listed on a stock exchange. Shareholders are effectively the owners of the company and typically have the right to vote on company matters.

European Central Bank (ECB)

The institution in the European Union responsible for setting monetary policy for all European Union countries that use the euro.


Purchase of shares without entitlement to current dividends.


Financial Conduct Authority (FCA)

The UK’s main financial services regulatory body. It is an independent non-government organisation.

Fixed-income securities

Investments that obligate the borrower to pay the owner interest during the term of the loan and to return the principal when the loan matures. Bonds are an example of fixed-income securities.


The Financial Times and Stock Exchange, a publisher of indices and the name of the family of indices it publishes.

FTSE 100 index

An index that tracks the share price of the largest companies, by market value, listed on the London Stock Exchange.

FTSE All-Share index

An index of the UK’s leading companies’ share prices, covering around 800 companies and including investment trusts.

Fund Manager

The person responsible for the day-to-day management of the investment trusts.

Fund of funds

A fund that invests in several funds at the same time with the aim of spreading risk and minimising the impact of any poor performance in a single fund. Fund of funds managers select the funds they invest in, but not the individual stocks.

Fund size

The total value of assets under management in a trust.



The amount of borrowing a company or trust has relative to its share capital. Trusts that are geared have the ability to borrow money and therefore take advantage of wider investment opportunities. If a company is highly geared, its profits and losses can be greatly affected by even small changes in interest rates.

Government bond

A bond issued by a government to raise finance. Government bonds are negotiable and can be traded on the stock market. In the UK they are often referred to as gilts.

Growth trust

A trust whose main objective is to maximise the value of the capital sum invested rather than generating income.


High-yield bonds

Bonds issued by companies where there is perceived to be a higher risk of default – but also the potential for higher returns. Also known as sub-investment-grade bonds.


Income trust

A trust whose main objective is to provide investors with a regular income from its investments.


A scale that measures relative changes in performance. A financial market index, such as the FTSE 100, is an imaginary portfolio of securities. The method for calculating changes in indices differs across financial markets.

Indirect property trust

A trust that invests in real estate vehicles such as property shares, property investment companies, REITs, limited partnerships or property unit trusts as opposed to the actual properties themselves.


The rate at which the general level of prices for goods and services is rising and, consequently the purchasing power of currency is falling.


The charge for the privilege of borrowing money typically expressed as annual percentage rate (APR). Interest can also refer to the amount of ownership a stockholder has in a company, usually expressed as a percentage.

Investment property

Real estate purchased as an investment rather than a place to live.

Investment trust

A public limited company that is listed on the London Stock Exchange. It exists to invest in the equity of other companies with the aim of producing a return for its shareholders.


Individual Savings Account (ISA) offers tax advantages for UK based investors. Any returns earned are free from capital gains tax and no further income tax is paid. The BMO ISA is a stocks and shares ISA and you can invest up to £20,000 each tax year. BMO does not offer cash ISAs. You also have the option of transferring the value of any of your existing stocks and shares ISAs (including stocks and shares ISAs that were PEPs on 5 April 2008) or cash ISAs (including TESSA only ISAs) to us without losing their tax-efficient status. However your existing ISA manager may charge you for the transfer.



These are UK companies that generally have a market value in the £250 million to £2 billion range and make up indices such as the FTSE 250 Index.

Monetary policy

Decisions made by a government or central banks, regarding the amount of money in circulation in the economy. This includes setting official interest rates.


Net asset value

A key measure of the value of a company or trust – the total value of assets less liabilities, divided by the number of shares.


Offer price

Investment trust shares are bought offer price.


Investment funds that are not restricted in the number of shares they may issue. (See also closed-ended.)

Open-Ended Investment Company (OEIC)

A company or fund in the UK that invests in other companies and is permitted to adjust the number of shares in issues on a daily basis.

Ordinary shares

Companies can have different types of shares, but the vast majority are 'ordinary' shares. As a holder of ordinary shares, you have bought a stake in the ownership of the company. You will be invited to attend shareholders' general meetings, including the Annual General Meeting and have the right to vote on certain decisions of the company.


A portfolio holding an excess amount of a particular security (or sector or region) compared to the security’s weight in the benchmark portfolio. (See also underweight.)


Passive management

A style of investment management in which the trust’s portfolio mirrors its benchmark.


A Public Limited Company in the UK is a company limited by shares and having an authorised share capital of not less than £50,000.


The collection of investments held by an investor or a trust.

Preference shares

Shares in a company that have a higher claim on the assets and earnings than ordinary shares. Dividends for preference shares generally must be paid out before those to ordinary shares. Preference shares usually don’t have voting rights.


When shares of an investment trust trade at a price above their net asset value, they are unsaid to trade at a premium.

Prime unit

A real estate investment regarded as the best in its class and location.

Private equity

Investment in firms not listed on a stock exchange. Investors (which can include Investment Trusts or other funds) directly invest in private companies and then own a share of that company. Investors can also buyout public companies which results in the delisting of public equity.


A document required by law to be published on the occasion of an issue of shares or fixed interest securities to the public. A prospectus gives details of the company and the issue.


Quantitative easing

Increasing the supply of money in a national economy by buying government (or other) securities from the market in order to promote greater lending and increased liquidity.


A group containing 25% of the total. Trusts are often ranked by their quartile performance; a top-quartile fund has outperformed at least 75% of its peers.



Real Estate Investment Trust. A form of indirect property investment.


The amount by which an investment may change due to a combination of capital growth and/or interest/dividend income. This is normally expressed as a percentage.

Rights issue

A method of raising extra capital through the issue of new equity shares. Existing shareholders can buy new shares in proportion to their current holdings, usually at a discount, or sell their rights to other investors.


The chance that there might be investment losses from the investment originally made, or the return that is expected.


Retail Price Index. The main measure of inflation used for calculating indexation for capital-gains tax and on index-linked gilts and National Savings products.



Investment trusts similar to each other in scope and objectives. A sector also refers to an industry or area of commerce in which a company operates (for example, mining).


These companies tend to exhibit higher volatility than large or medium cap companies, but can offer excellent growth potential.


The spread is the term used to describe the difference between the offer price and the bid price.

Stamp duty

A Government tax imposed on the buying of shares and property. Stamp duty only applies to purchases and not to sales.


A share of a company held by an individual or group.

Stock exchange

A place where stocks and shares are traded.


Total return

The growth in value of a share holding over a specified period, assuming that dividends are re- invested to buy additional units of the stock.

Tracker fund

A fund that aims to replicate the performance of a particular stock market index by buying all or a representative proportion of the stocks within that index. Tracker funds are passively managed.



A portfolio holding less of a particular security (or sector or region) than the security’s weight in the benchmark portfolio.

Unit trust

Money from a number of investors pooled together and invested collectively in investments such as shares and bonds. Each investor owns a unit (or a number of them), the value of which relates to the value of those items owned by the fund.



This gives the holder the right to buy shares at a fixed time in the future for a price that is set when the warrant is issued.



The annual dividend or income on an investment expressed as a percentage of the purchase price.


Zero dividend preference shares

A share with no right to receive a dividend. It is entitled instead to a fixed sum on a fixed repayment date. These are shares that aim to deliver pre-determined growth.