S

Sales Growth
The average annual growth rate of net sales per share over a trailing three years.

Sales to Price
Net sales per share divided by share price.

Scrip Dividend
Payment of a dividend as shares instead of cash. By increasing the number of shares, a scrip dividend can reduce earnings (profits per share).

Scrip Issue (or Bonus Issue)
A free issue of shares to existing shareholders.

Secondary Market
The market place for issued shares. The state of the secondary market, like the level of demand and appetite for shares, sets the tone for the new issue, or primary, market.

Sector
The grouping of companies, or assets, with common features. For shares, the term is used to mean the listed companies within an industry. A stock market is broken down into sectors.

Sharpe Ratio
A measure of return adjusted for the amount of risk that has been taken. The higher the Sharpe Ratio, the better the portfolio’s return in risk adjusted terms. This ratio is used to calculate the level of a fund’s return over and above the return of a notional risk-free investment, such as cash or Government bonds. The difference in returns is then divided by the fund’s volatility, or risk measurement. A Sharpe Ratio is useful when comparing similar portfolios or instruments. There is no absolute definition of a ‘good’ or ‘bad’ Sharpe ratio, although a fund with a negative Sharpe Ratio would have been better off investing in risk-free Government securities. It follows then that the higher the Sharpe Ratio the better the risk-adjusted performance. When analysing similar investments, the one with the highest Sharpe Ratio has achieved more return while taking on no more risk than its competitors.

Share
A certificate (which these days can be virtual rather than real) conferring rights of ownership in a company.

Share Buy-Back
The repurchase of issued shares by a company, whether through the stock market or by tenders to shareholders. Shareholders have to approve the measures, and repurchases are currently restricted to 15% in a year. It is a way of returning capital to shareholders.

Shell Company
A quoted company with no assets, almost worthless, often used as a means for reverse takeovers.

Short Covering
Buying shares, previously sold short, in order to deliver them to the new owner.

Short Position
The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.

Short Term Momentum
Price momentum versus benchmark over the past 6 months, weighted using a decay ration of 2/3rds per month.

Soft Market
The condition of a stock market when prices are falling, i.e. softening.

Split Capital Investment Trust
An investment company with a fixed life, which issues several classes of share with different objectives to satisfy differing individual financial needs. The different rights of the share classes provide gearing, the potential of extra rewards.

Spread
The difference between the buying and the selling price of a security or asset.

Stamp Duty
A tax on buying shares, and other assets like houses, which is proved by the exchange of documents.

Standard Deviation
A similar measure to tracking error except that risk is an absolute volatility versus cash, rather than a relative measure versus a benchmark.

Stock
A general term for shares in a company, but specifically refers to bonds. It is also used to mean the fixed assets of a business.

Stock selection
A way of investing which concentrates on choosing shares in a company solely on its intrinsic worth.

Stop order
A client’s instruction to a broker to sell (or buy) in the event that a stock price falls (or rises) to a certain level. Stop orders are usually trailed as the market rises (or falls).

Sub-fund(s)
Any or all of the funds offered by an Open Ended Investment Company (OEIC).

Subordinated
Describes a debt obligation which ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as ‘junior’. In the case of default, creditors with subordinated debt wouldn’t get paid out until after the senior debt holders were paid in full. Therefore, subordinated debt is more risky than subordinated debt.

Supra Sovereign
Described an organisation that transcends international borders i.e. International Monetary Fund or The World Bank.

T

Tax-Exempt Special Savings Accounts (TESSA)
Tessas were five-year savings account which paid interest gross. They were closed to new business in 1999 when ISAs started.

Total Return
The increase or decrease in the value of a portfolio taking into account any gain and income earned.

Tracker Fund
An alternative name for an index fund.

Tracking Error
The degree to which a tracking fund conforms with the change in the index it is tracking i.e. the standard deviation of a fund’s excess returns over the returns of an index or benchmark portfolio. It can, therefore, be an indication of ‘riskiness’ in a fund manager’s investment style. A Tracking Error below 2 suggests a passive approach, with a close fit between the fund and its benchmark. At 3 and above, the correlation is progressively looser: the manager will be deploying a more active investment style and taking bigger positions relative to the benchmark’s composition.

Treynor Ratio
The Treynor Ratio is a measurement of the returns earned in excess of that which could have been earned on a riskless investment (e.g. Treasury Bill) (per unit of market risk assumed).
The Treynor Ratio (sometimes called reward-to-volatility ratio) relates excess return over the risk-free rate to the additional risk taken; however systematic risk instead of total risk used. The higher the Treynor Ratio, the better the performance under analysis. A Treynor Ratio greater than 1 shows that the fund has produced more units of return than of risk. It is useful in comparing funds which invest in similar market sectors and achieve similar returns.

Trustee
Oversees the actions of the fund manager for a unit trust company on behalf of unitholders, and ensures proper behaviour.

U

Undervalued
A term which describes an investment which a fund manager believes is trading at a price lower than its true market value.
Underweight
As opposed to overweight.

Unit Trust
A fund which pools investors’ money and gives a ready-made portfolio of investments. A unit trust creates new units in response to increasing demand and prices units close to their underlying asset value. A unit trust may also redeem units when unitholders cash-in their holding. (See Open End Fund).

Universe
A term used by fund managers to describe the total number of available stocks from which a portfolio is selected.

V

Value Investor
An investor whose way of investing is to buy shares when they are considered to be under priced and to take profits when they appear overvalued.

Volatility
Standard deviation is a statistical measurement which, when applied to an investment fund, expresses its volatility, or risk. It shows how widely a range of returns varied from the fund’s average return over a particular period. Low volatility reduces the risk of buying into an investment in the upper range of the deviation cycle, then seeing its value head towards the lower extreme. For example, if a fund had an average return of 5%, and its volatility was 15, this would mean that the range of its returns over the period had swung between +20% and -10%. Another fund with the same average return and 5% volatility would return between 10% and nothing, but there would at least be no loss.
While volatility is specific to a fund’s particular mix of investments, and comparison to other portfolios is difficult, clearly, for those that offer similar returns, the lower-volatility funds are preferable. There is no point in taking on higher risk than necessary in order to achieve the same reward.

W

Warrants
A certificate that gives the holder the right to buy a number of shares at a given price in the future. Like options, warrants do not receive interest or dividends.

Weighting
The proportion of a share or asset class in a portfolio of a fund compared with the proportion in an index.

Y

Yield
The annual return from a bond or share or fund given as a percentage of its price.