Investment Terms Explained
This is a guide to some investment terms; not all will not be relevant for every trust. Please contact your financial adviser if you need an explanation of the terms used.
Percentage weighting in the portfolio of a position above or outside of the benchmark as at the date indicated.
A measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its benchmark. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the benchmark. An active share of 100 indicates no overlap with the benchmark and an active share of zero indicates a portfolio that tracks the benchmark.
The Company’s Administrator is HSBC Securities Services (HSS) who are contracted through Polar Capital LLP to provide accounting and administrative services under the terms of the Investment Management Agreement (“IMA”).
Annual General Meeting – a meeting required to be held in accordance with the Companies Act 2006, within six months of the Company’s financial year end. Details of the arrangements will be provided in the separate Notice of AGM and on the Company’s website.
The excess return on an investment in the Company compared to the benchmark and can be used as a measure of performance, where the benchmark is considered to represent the market's movement as a whole.
Association of Investment Companies, the industry body for closed ended investment companies.
Alternative Investment Fund – the Company is an investment trust which is a collective investment undertaking which raises capital from a number of investors (in the case of the Company, by selling shares in the open market on the London Stock Exchange) with a view to investing the capital in accordance with the investment policy.
Alternative Investment Fund Manager, a body appointed in accordance with the AIFMD (see below). Polar Capital LLP is the appointed AIFM to the Company.
Alternative Investment Fund Managers Directive. Issued by the European Parliament in 2012 and 2013. The Directive requires that, while the Board of Directors of an Investment Trust remains fully responsible for all aspects of the Company’s strategy, operations and compliance with regulations, all alternative investment funds (‘AIFs’) in the UK and European Union, must appoint a Depositary and an Alternative Investment Fund Manager (‘AIFM’).
The amount the Trust has gained or lost over a rolling 12 month period as a percentage after fees.
Assets under management.
A financial data and news company headquartered in New York. Traders, fund managers or analysts use Bloomberg terminals to extract data, securities prices and other financial information.
A debt investment where an investor loans money to an entity which borrows the funds for a defined period of time at a variable or fixed interest rate. Owners of bonds are creditors of the issuer.
Bottom-up Stock Selection/Portfolio Construction
An investing approach which focuses on the analysis of individual stocks rather than the broader market and economic environment.
Closed-ended Investment Company
An Investment Company whose shares are traded in the open market, e.g., on the London Stock Exchange.
The total amount the Trust has gained or lost in the period specified as a percentage after fees.
HSBC Bank plc is the Custodian of the Company’s assets. The Custodian is a financial institution responsible for safeguarding, worldwide, the listed securities and certain cash assets of the Company, as well as the income arising therefrom, through provision of custodial, settlement and associated services.
Convertibles are securities that can be converted into common stock on the stock exchange. Convertibles are usually convertible bonds where bond holders can convert their creditor position to an equity holder at an agreed upon price.
Arranging the sale and purchase of shares in the Trust.
The Company’s Depositary is also HSBC Bank plc. Under AIFMD (see above) rules the Company must appoint a Depositary whose duties in respect of investments, cash and similar assets include: safekeeping; verification of ownership and valuation; and cash monitoring. Under the AIFMD rules, the Depositary has strict liability for the loss of the Company’s financial assets in respect of which it has safe-keeping duties. The Depositary’s oversight duties will include but are not limited to share buybacks, dividend payments and adherence to investment limits.
Derivative is a contract between two or more parties, the value of which fluctuates in accordance with the value of an underlying security. Examples of derivatives are Put and Call Options, Swap contracts, Futures and Contracts for Difference. The use of derivatives is to protect the capital value of the portfolio or for efficient portfolio management. A derivative can be an asset or a liability and is a form of gearing because it can increase the economic exposure to shareholders
Discount is where the share price of an investment company is lower than the net asset value per share.
Discrete Annual Performance
The percentage performance of an investment over specific, defined time periods.
Earnings per share (EPS)
A company’s profitability expressed on a per share basis and calculated by dividing the company’s annual earnings after tax by the weighted average number of shares in issue.
Emerging markets are countries that are progressing toward becoming advanced, usually shown by some development in financial markets, the existence of some form of stock exchange and a regulatory body.
The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting healthy competition between financial service providers.
Any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule.
International Financial Reporting Standards (IFRS) are accounting standards which are developed by the International Accounting Standards Board (IASB) and the International Sustainability Standards Board (ISSB). The IASB sets IFRS Accounting Standards and the ISSB sets IFRS Sustainability Disclosure Standards.
A measure of the change in the average price level of a basket of goods and services in a particular economy.
In Section 833 of the Companies Act 2006, an Investment Company is defined as a company which invests its funds in shares, land or other assets with the aim of spreading investment risk.
Investment Trust Tax Status
UK Corporation Tax law (Section 1158 of the Corporation Tax Act 2010) allows an Investment Company (referred to in Tax law as an Investment Trust) to be exempt from tax on its profits realised on investment transactions, provided it complies with certain rules. These are similar to Section 833 above but further require that the Company must be listed on a regulated stock exchange and that it cannot retain more than 15% of income received. The Directors’ Report contains confirmation of the Company’s compliance with this law and its consequent exemption from taxation on capital gains.
Gearing is all external borrowings of the Company and any subsidiaries.
The geographical location in which the holdings of the Trust are listed. Exposure represents the relative risk particular to the percentage of investment in that particular geographic location.
High Water Mark
A high water mark is the highest peak in value that the Trust has reached in the context of a specified period of time.
The benchmark the Trust has used to track performance. Further details of this are contained in the important information section of this document.
International Securities Identification Number. A unique international code which identifies a securities issue. Each country has a national numbering agency which assigns ISIN numbers for securities in that country.
Key Information Document.
As defined under AIFMD rules, leverage is any method by which the exposure of an AIF is increased through borrowing of cash or securities or leverage embedded in derivative positions. Leverage is broadly equivalent to gearing but is expressed as a ratio between the assets (excluding borrowings) and the net assets (after taking account of borrowings).
The ease with which a security can be traded on the market, usually defined by turnover of the shares divided by the number of shares in issue.
Buying stocks/shares and other securities with the aim of generating capital gains and income from positive performance of those assets.
Polar Capital LLP (Polar Capital), also appointed as AIFM (see above). The responsibilities and fees payable to Polar Capital are set out in the Strategic Report.
The entitlement of the Investment Manager to an annual management fee. Please see the Explanation of Fee Arrangements available on the Company's website for further information, found here.
Market Capitalisation Exposure
Also sometimes referred to as ‘market cap’, this is a measure which describes the size of a Company or an Investment Trust. It is calculated by multiplying the number of shares by the price of the shares
Net Asset Value (NAV)
The NAV is the value attributed to the shareholders of the Company less the liabilities, presented either on a per share or total basis. The value of the Company’s assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV is also described as ‘Shareholders’ funds’ per share. The NAV is often expressed in pence per share after being divided by the number of shares which have been issued. The NAV per share is unlikely to be the same as the share price which is the price at which the Company’s shares can be bought or sold by an investor. The NAV per ordinary share is published daily.
The Company is managed by a Board of Directors who are appointed by letter rather than a contract of employment. The Company does not have any executive Directors. Remuneration of the Non-executive Directors is set out in the Directors’ Remuneration Report while the duties of the Board and the various Committees are set out in the Corporate Governance Statement.
The measure of what it costs to invest in the Company, including the Management Fee and other operating costs.
An open-ended fund is a fund which does not have restrictions on the amount of shares that the fund will issue. A UCITS is an undertaking for collective investment in transferable securities, within the UCITS regulations.
Where an equity or financial instrument has performed better than the market return.
Where the Trust has more of a particular security when compared to the security’s weight in the underlying benchmark portfolio.
The difference between the portfolio return and the benchmark return. The Top Contributors to the Trust reflect the portfolio holdings which most contributed to positive performance in the Trust. The Top Detractors indicate which holdings in the portfolio influenced underperformance in the Trust against the benchmark.
A fee charged on any returns that, subject to a High Water Mark, the Trust achieves above its performance fee benchmark. Please refer to the prospectus for further information.
A grouping of financial assets such as stocks, bonds and cash equivalents, managed by a financial professional.
Premium is where the share price of an investment company is higher than the net asset value per share.
Price/earnings ratio (P/E ratio)
A way to estimate the future earnings potential of a particular company or investment trust. It is calculated by taking the current price and dividing it by earnings per share. The P/E ratio also gives an indication of how quickly the company is expected to grow – a high PE indicates that a company is expected to see EPS grow quickly in the future.
The percentage of the Trust's assets which are invested in a particular sector or industry. Exposure represents the relative risk particular to the percentage of investment in that particular sector.
Stock Exchange Daily Official List. A SEDOL number is a unique code used in the UK and Ireland to identify securities.
A measure of risk adjusted performance. The higher the ratio, the better risk adjusted performance has been.
Borrowing shares to sell in the open market with the goal of buying these shares back at lower prices in the future, and at that time returning the shares to the lender.
The Statement of Recommended Practice (SORP) for investment trust is issued by the AIC and it provides recommendations on financial reporting that supplement official accounting standards. The financial statements of the Company are prepared in accordance with the Investment Trust SORP.
Measures how closely the Trust's performance follows the benchmark.
Treasury shares are the Company’s own shares that have been brought back from shareholders and not cancelled but held in Treasury. Such shares may be reissued into the market at a premium to NAV. Treasury shares do not attract the right to receive dividends or have any other voting rights.
The international accounting standards adopted by the UK Endorsement Board after delegation of adoption powers. This includes International Accounting Standards (IAS), IFRS and related interpretations, subsequent amendments to those standards and related interpretations, future standards and related interpretations issued or adopted by the IASB.
Where an equity or financial instrument has performed worse than the market return.
Where the Trust has less of a particular security when compared to the security’s weight in the underlying benchmark portfolio.
The worth of an asset company based on its current price.
Volatility describes the price movement of an investment. High volatility indicates frequent and significant price movement, whereas low volatility investments have less frequent or severe fluctuations in price.
The yield is the return on an investment, usually expressed as a percentage of the purchase price.
Year-to-Date. Refers to the amount the Trust has gained or lost since the first day of the calendar year or alternatively the financial year, whichever is indicated.