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Glossary of multi-asset investing

5 minutes read
Last updated on 24th Oct 2018

Alpha - Alpha is deemed to be the excess return of a fund, relative to the return of its comparative index. Alpha is often referenced to confirm that a portfolio manager has added to a portfolio’s value and fund return overall.

Active investing - Active investing refers to an investment strategy where an appointed persons, such as a fund manager, buys and sells investments on an ongoing basis consistently monitoring performance to ensure the best returns possible area achieved.

Alternative investment - An alternative investment invests in assets that do not form a part of the traditional bond or equity sphere. Alternative assets include, property, infrastructure, private equity, commodities and hedge funds to name a few.

Asset - Anything investable that has a commercial value, or an exchange value and that is owned by a government, business or individual. An asset class is a group of securities that are similar in terms of their behaviour and/or characteristics. The four main asset classes are equities, fixed income (bonds), alternative investments and cash.

Bear market - An economic scenario in which the prices of assets are falling and selling is encouraged.

Bonds - Bonds are effectively a secured loan, in most cases issued by a government or a company which pays a fixed rate of interest over a given amount of time. At the end of the period, the borrowed amount is repaid in full. Bonds are also referred to as ‘fixed income’ for this reason.

Bull market - An economic scenario in which the prices of securities are rising. Investors are often optimistic on the back of strong returns.

Capital growth - The increase in value of an asset over time; often ending with the current value of the investment being greater than the starting amount invested.

Developed markets - Developed markets are generally regarded as those well-established economies with a high degree of industrialisation and secure governments. Standards of living and are often higher in developed markets and economies are more advanced.

Diversification - Diversification is the practice of ensuring a portfolio is invested in a variety of assets to ensure capital is protected regardless of market economics. Diversification is also used to manage risk as any losses of one asset should be offset by another more defensive asset in the portfolio.

Economic scenario generator - A computer generated model based on mathematics that is able to simulate possible future directions of markets based on a range of variable the user inputs.

Emerging markets - Emerging markets are those economies still experiencing rapid growth. Emerging markets usually have more favourable demographics, thus more room for growth in the coming years. However, these markets are generally considered as being riskier than developed economies due to issues such as potentially unstable governments.

Equities - Equities are stocks or shares in a company. When an investor buys stocks, they are buying an equity stake in a company and thus own part of that company.

Index - An index refers to a particular segment of the market, and is often used as an indicator for average performance versus a fund or manager. An index-tracking strategy aims to match returns from this average indicator often by investing in the same stocks. This is often referred to as a type of passive investing.

Liquidity - This is a measure of how much cash a company has as its disposal. For example, a company’s shares are considered 'highly' liquid if they can be easily bought or sold on the stock markets. The opposite is an illiquid company, which may represent a company with little cash at its disposal or in investment terms as something that is difficult to sell.

Macroeconomic - When talking about macroeconomics, it often takes in a number of indicators of the health of an economy at a national level. These factors can be economic output, inflation and employment figures.

Monetary easing - Monetary easing refers to global central banks using measures such as lowering interest rate or quantitative easing to help ease stresses on the economy.

Monetary tightening - Monetary tightening is the opposite of easing. It often refers to the raising of interesting rates which increases the cost of borrowing, and options to decrease the amount of money in circulation.

Multi-asset - This type of investing refers to a process of investing in a range of diverse assets and sectors. A multi-asset fund often combines traditional securities with alternative approaches and sometimes, hedging techniques.

Multi-manager funds - Multi-manager funds focus on investing in multiple funds that specialise in specific sectors or themes in order to build a portfolio that generates higher returns.

Price-earnings ratio - A measure that compares a company's current share price to its earnings per share.

Risk-adjusted funds - Risk-adjusted funds measure how much risk is required to produce a specific fund return. The most widely used measure of risk-adjusted return is called the Sharpe Ratio.

Risk-managed funds - A risk-managed fund aims to measure (and thereby control) the level of risk a fund manager can take to achieve a specific return. Risk-managed funds actively target a certain level of risk that is pre-defined and adhered to always.

Risk profile - Risk profile is an evaluation of how risk tolerant (or averse) an individual is to take risks when investing in a fund portfolio or similar. This is an important tool wealth managers and financial advisers use in order to define how a client should invest.

Strategic asset allocation - This type of allocation is focused on the longer term; investing in a broad range of assets, sectors and themes that take advantage of market efficiency and are not swayed by short-term market noise.

Tactical asset allocation - Tactical asset allocation is the short-term equivalent of strategic asset allocation in many respects and actively adjusts a portfolio to improve overall fund returns.

Total return - The gain or loss of an investment or asset when it is traded.

Unconstrained - An investment strategy or manager that has the ability to invest wherever they want according to their own strategy, without being constrained by a benchmark or specific weightings.

Underweight - When a portfolio holds a smaller amount of an investment when compared to the index or sector average.

Valuation - How much an asset or company is worth based on its current price.

Volatility - The degree of variation from the norm an asset price or fund might experience. If a stock experiences high volatility, it suggests a large amount of risk is entailed in investing in it.

Yield - In equities, yield can refer to dividends received from a stock. In bonds, yield refers to the interest an investor receives from investing in it. It is expressed as an annual percentage, and is based on the security’s current value.

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