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Glossary

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401(k)
US personal pension schemes. Investment choices much wider than UK personal pensions but usually including shares, bonds, money market funds, VCTs and other mutual funds.
ABI
See Association of British Insurers.
ABS
See Asset-backed security.
Accounting reference date
The closing date for a fund's annual accounting period. This date must be stated in the fund's prospectus (or scheme particulars).
Accrued interest/income
Interest earned by investors (or their fund or portfolio) awaiting distribution. Fixed income interest is accrued daily, Dividends are accrued only when the security price goes ex-dividend (xd).
Accumulation shares/units
Income earned on investment remains accumulated within the price of the units/shares, increasing the value of the holding.
ACD
See Authorised Corporate Director.
Active funds
Funds that aim to out-perform a benchmark (usually an index) (e.g., the FTSE 100).
Active management
Active fund managers believe they can identify mis-priced securities which they buy/sell to out-perform their benchmark.
Active risk
The risk arising from active management in excess of the risk that would be incurred if the portfolio was passively managed (i.e., the weighting differential versus the benchmark/index).
Actuary
A professional person skilled in evaluating and assessing risks. Actuaries monitor and advise on the solvency of life assurance companies and pension funds.
Added value
Performance in excess of a stated benchmark or index (see Alpha).
Additional Voluntary Contributions (AVCs)
Employee contributions over and above any compulsory contributions to a tax-approved occupational pension scheme. Tax law limits the total value of contributions that can be made.
Administrator
Firm employed to handle client monies (see Transfer Agent). In the case of offshore funds, the administrator instructs brokers on the recommendations of the fund adviser.
ADR
See American Depository Receipt.
Advanced active management
An investment approach that uses quantitative tools (such as computer-driven models) to systematically control risk and cost and achieve above-benchmark returns.
Advanced Risk-Responsive Operating FrameWork (ARROW)
Devised and used by the FSA to make risk-based regulation operational.
Agency broker
A broker who works on a commission basis to secure the best deal for the client on the market.
Aggregation
Multiple-client orders processed as a single order. Customers must be notified of this procedure and its advantages and disadvantages.
AGM
See Annual General Meeting.
AIC
See Association of Investment Companies.
AIF
See Authorised Investment Funds.
AIM
See Alternative Investment Market.
All Share index
Properly, the FTSE-All Share Index that summarises the state of the UK equity markets. It covers some 900 of the major UK industrial, commercial and financial companies.
All-in price
Market price of a bond plus accrued interest. Also known as the 'dirty price'.
Allocation
The division of a single aggregated order across two or more investors/funds/portfolios.
Allotment letter
Written confirmation from an issuing company to the subscriber of the allotment of new shares.
Alpha
The out-performance of a portfolio against the benchmark attributable to the manager's strategy.
Alpha managers
A term widely used by hedge fund (and other active) managers seeking to out-perform their chosen benchmark by as much as possible.
Alternative Investment Market (AIM)
UK stock market run by the London Stock Exchange for smaller company shares in the UK. AIM shares are not considered fully listed securities.
Alternative investments
Investments outside the mainstream. Can include hedge funds, venture capital, art, wine, infrastructure funds, etc.
Alternative Trading System (ATS)
More commonly referred to as MTFs.
Alternatively Secured Pension (ASP)
Available from age 75. A form of Pension Fund Withdrawal. An alternative to a Lifetime Annuity
AMC
See Annual Management Charge.
American Depository Receipt (ADR)
An ADR represents a share, or a defined number of shares, of a non-US company. A US depository bank holds the underlying shares and issues the Depository Receipt. ADRs may be listed in the US, UK and Luxembourg. Unlisted Level I ADRs are traded OTC on NASDAQ.
AML
Anti-Money Laundering.
Annual General Meeting (AGM)
Regular shareholder meeting, legally required to be held annually to approve accounts and dividend, re-appoint auditors and directors, and transact any other business.
Annual management charge (AMC)
A charge imposed by the asset manager on a fund/portfolio. The charge on retail unit/share classes is usually 1.5% x NAV and is taken from the fund. Institutional unit/share classes pay less. Hedge funds usually charge 2% plus a performance fee.
Annual Percentage Rate (APR)
Real cost of borrowing.
Annual report
Report on a fund/company sent to investors/shareholders.
Annuity
A fixed annual payment. Individuals will generally use their pension savings to purchase an annuity on retirement. The value of the annuity is greatly affected by current interest rates at the time of purchase. The real value of annuities decreases over time due to inflation.
Appointed representative
A self-employed individual or a firm that is contracted by an authorised firm to conduct regulated business. May include sales teams or administration firms (TPAs).
Approved Persons
Individuals who perform Controlled Functions and must be registered with the FSA. Must demonstrate that they are fit and proper, as well as competent, for their role. Governed by FSA Code of Practice.
APR
See Annual Percentage Rate.
APT
See Arbitrage Pricing Theory.
Arbitrage
A strategy to buy a cheap asset and sell an over-priced asset to make a (small) risk-free return. May be used within same asset (e.g., shares/bonds) or across assets (e.g., gold price vs oil).
Arbitrage Pricing Theory (APT)
Complex mathematical theory to construct efficient portfolios maximising the client's risk and return profile.
ARROW
See Advanced Risk-Responsive Operating FrameWork.
ASP
See Alternatively Secured Pension
Asset allocation
The distribution of investments in a portfolio (equities, bonds, cash, property, hedge funds) to maximise client returns.

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