A simple

guide to
financial
terms
The aim of this guide
This guide has been created to make
investment literature easier to understand
and to clarify some of the more common
terms. Emphasis has been placed on clarity
and brevity rather than attempting to cover
every single complex detail.

As you read through, you will notice that some words

are highlighted in a lighter shade of blue within the
copy. This means that the word or phrase also has its
own entry, and that you may need to look this up to
gain a fuller understanding.
We hope you find the guide useful and simple to
digest. We have made every effort to ensure that
the terms are accurately described, however, the
descriptions are not definitive and they may differ
from other interpretations used.
If you would like more information, please call our
Investor Services Team on 0800 718 777* or visit
us online at www.schroders.co.uk

*Please note, for your security calls to Schroders may be recorded.

Simple guide to financial terms 1

 A
Absolute return strategy Annual management fee
An absolute return investment strategy Every year your investment management
aims to deliver positive returns whatever company charges an annual management fee,
the market does, rather than simply aiming usually a percentage of the amount invested.
to outperform a benchmark index.
Annualised return
Accumulation units For a period of greater than one year,
Units in a collective investment scheme a measure of the level of return that has
where any income is automatically reinvested been achieved on average each year.
into the scheme. See also income units.
Asset allocation
Active management The apportionment of a portfolio’s assets
An investment management approach where between asset classes and/or markets. For
a manager aims to beat the market through example, a fund may hold a combination of
research, analysis and their own judgement. shares, bonds and cash. The weightings given
See also Passive management. vary according to the investment objective
and the investment outlook.
Active risk
To try to beat the returns of the benchmark the Asset-backed security (ABS)
active investment manager must take different An investment that derives its value and
investment positions to the benchmark. Where income payments from a pool of illiquid
positions are different, risk can also be different. (see liquidity) assets. This allows investors
access to a diversified pool of assets that
The risk that the manager takes relative to they would not otherwise be able to buy,
the risk of the benchmark is known as active for example loan repayments.
risk. The higher the level of active risk, the
greater the chance that returns will deviate Asset Classes
from the benchmark. Broad groups of different types of investments.
The main investment asset classes are equities,
Alpha bonds and cash. Non traditional asset classes
A measure which can help you identify are known as alternative investments.
whether an actively managed portfolio has
added value in relation to risk taken relative Authorised fund
to a benchmark index. A positive Alpha A fund that is authorised and regulated
indicates that a manager has added value. by the UK financial regulator, the FCA
(Financial Conduct Authority).
Alternative investments
Investments outside of the traditional
asset classes of equities, bonds and cash.
Alternative investments include property,
hedge funds, commodities, private equity,
and infrastructure.

2 Simple guide to financial terms

 B C
Benchmark Capital discipline
A standard, (usually an index or a market Where a company exercises discipline and
average) that an investment fund’s performance prudence in how much money it borrows,
can be measured against. A benchmark can raises and spends, in order to deliver the
also be used for comparative purposes only. best returns to its shareholders and ensure
its long-term stability.
Beta
Measures the average extent to which Capital protection
a fund moves relative to the broader market. An investment where there is an aim to preserve
The beta of a market is 1. A fund with a beta a specified amount of the initial investment.
of more than 1 moves on average to a greater
extent than the market. A fund with a beta Collateral
of less than 1 moves on average to a lesser  ssets pledged as security against a loan.
A
extent. If beta is a minus number, it is likely If the debt can’t be repaid, the lender is entitled
that the stock and the market move in to take ownership of the collateral.
opposite directions.
Collective Investment Scheme (CIS)
Bid price A professionally managed fund which combines
The price a buyer is willing to pay. In the context the money of a broad range of investors in
of funds, it is the price received by the investor a single investment vehicle. This pools costs and
when redeeming a share or a unit in a dual allows access to a wider range of investments
priced fund. See also offer price. than investors would generally be able to
Bonds achieve individually.
Provide a way for governments and companies Commodities
to raise money from investors for current An asset class which encompasses a broad
spending requirements. In exchange for an range of physical assets including oil and gas,
upfront payment from investors, a bond will metals and agricultural produce.
typically commit the issuer to make annual
interest payments and to repay the initial Contingent convertible bonds
investment amount on maturity at a specified Also known as ‘CoCos’, are slightly different
date in the future. to regular convertible bonds in that the
likelihood of the bonds converting to equity
Book Cost is “contingent” on a specified event, such as
The original cost of an investment. While the stock price of the company exceeding a
market prices may go up and down, the book particular level for a certain period of time.
cost remains the same.
Convertible bonds
Bottom up investing A type of bond that can be converted into
Investment based on analysis of individual a predetermined number of shares in the
companies, whereby that company’s history, company issuing the bond.
management, and potential are considered
more important than general market or sector Corporate bond
trends (as opposed to top down investing). A bond issued by a company.

Simple guide to financial terms 3

 C
Correlation (CDS) Credit risk
A statistical measure of the relationship The risk that a bond issuer will default on
between two variables, for example equities their contractual obligation to make interest
and bonds. A correlation coefficient of 0 payment to investors.
suggests there is no correlation.
Currency hedging
Coupon Reducing or removing the risk of incurring
The regular interest payment paid on a bond. losses through currency movements.
It is described as a percentage of the face value This is typically achieved through the use
of an investment. So a bond with a face value of derivatives such as futures or options.
of £100 with a 5% coupon will pay £5 a year.
Currency risk
Credit default The risk of loss through adverse currency
A CDS is a derivative. It is a type of insurance movements where a fund invests in assets
against the default of debt. The buyer of a CDS which are priced in a different currency or
pays a premium to a CDS seller in exchange currencies to that which the fund is priced in.
for the insurance that if the debt defaults,
the CDS seller will pay it to them. The CDS Current yield
seller is speculating against the risk of default The annual income from an investment,
and hopes to make a profit from the premium expressed as a percentage of the current price.
payments. The higher the risk of default, For example, if a bond that is worth £100 gives
the higher the premium. you an annual income of £6, the current yield
is 6%.
Credit rating
Bond issuers can pay to have their bonds
rated by a number of credit ratings agencies
including Standard & Poors, Moody’s and Fitch.
The credit rating is designed to give investors
an indication of the quality of the bond,
providing a professional assessment of the
risk that the issuer may default on interest and
capital repayments. Credit ratings are subject
to regular review and can and do change.

Credit rating agency

A company that assigns a credit rating to
issuers of debt – such as governments or
companies. Well-known credit rating agencies
include Standard & Poor’s and Moody’s.

4 Simple guide to financial terms

 D
Default risk Drawdown
The risk that a bond issuer will not be able to A drawdown is usually quoted as the
meet their debt payments and subsequently percentage between the peak and trough of an
default on their contractual obligation to investors. investment during a specific period. It can help
to compare an investment’s possible reward to
Developed markets its risk. Alternatively, when investing in certain
Countries that tend to be industrialised and types of funds, particularly venture capital
have a high gross domestic product. Developed funds, it can also refer to when an investor
markets usually have high standards of living commits to invest a sum of money but doesn’t
and stable economies, and are considered safer give it all to the fund manager immediately.
for investment than less developed markets. The fund manager makes the investments and
Derivatives draws down money as required.
The collective name used for a broad class of Downside
financial instruments that derive their value from The potential loss for a given investment.
other underlying financial instruments. Futures,
options and swaps are all types of derivative. Duration
A measure of a bond investment’s sensitivity
Distribution yield to changes in interest rates. The longer
Reflects the amounts that may be expected to the duration, the more sensitive it is.
be distributed over the next 12 months as a Calculating duration for a fixed income
percentage of the mid market price of the fund investment such as a bond is a complicated
as at the date shown. It is based on a snapshot sum. It takes into account the current value
of the fund on that day. It does not include of the bond, the coupon or interest payment,
any preliminary charge and investors may be the book cost, and the number of years the
subject to tax on the distribution. bond has left to run. Put simply, the higher
Diversification the duration number the higher the potential
Creating a portfolio from a range of different return (and the greater the risk).
assets. This reduces the risk of loss through Dynamic Asset Allocation
exposure to any individual asset and can help A strategy that involves rebalancing the mix of
to reduce overall portfolio risk where assets assets in a portfolio as markets rise and fall, and
have a low correlation. according to the manager’s expected outcome
Dividend for different assets ahead. In other words, if the
A payment made by a company to its manager expects equities to outperform in the
shareholders. The company decides how much month ahead, he or she will increase exposure.
the dividend will be, and when it will be paid. This is opposite to passive asset allocation –
where either a) an asset mix is set long term
Dividend yield (e.g. 60% equities; 40% bonds), or b) where the
The annual dividend per share divided by the portfolio’s asset mix only changes in line with
current share price. It is useful for comparing something else (for example the breakdown
investments. For example, if a company’s of different markets in the benchmark).
shares are trading at £100 and the annual
dividend is £5, the dividend yield is 5%.
However, if the company’s shares are £200,
the dividend yield is just 2.5%.
Simple guide to financial terms 5
 E
Earnings growth Ex dividend
The percentage change in a company’s Applied to an equity this shows that a dividend
earnings per share, generally measured over has been recently paid and that a purchaser
one year. will not receive it.

Earnings per share Ex post (Tracking error)

The profits of a company attributed to each Tracking Error is a measure of how closely an
share, calculated by dividing profits after tax investment portfolio follows the index against
by the number of shares. which it is benchmarked. If the tracking error
is measured historically it is called ex post or
Earnings yield realised tracking error. See also ex ante.
The earnings per share divided by the current
market price.

Effective duration of fund

Effective duration is a measure of a fund’s
interest-rate sensitivity. Put simply, the longer
a fund’s duration, the more sensitive the fund
is to shifts in interest rates. So a fund with
a duration of ten years is twice as volatile as
a fund with a five-year duration.

Emerging markets
Countries that have rapidly growing economies
and may be going through the process
of industrialisation.

Equities
A share in the ownership of a company.

Ex ante (Tracking error)

Tracking Error is a measure of how closely an
investment portfolio follows the index against
which it is benchmarked. If a model is used
to predict this (rather than it being measured
historically) it is called ex ante or predicted.
See also ex post.

6 Simple guide to financial terms

 F G
Fixed income Gearing
Refers to securities such as bonds which carry Borrowing money to invest, with the aim of
a predetermined and fixed rate of interest increasing returns. For example, if you invest
(coupon). As opposed to the variable return £100 and make a 5% return you make £5.
on equities. Borrow an extra £20 to invest and you make
£6 (minus the cost of borrowing the money).
Flat yield However, with gearing comes a higher degree
When short-term and long-term bonds are of risk. Whilst the potential for growth may be
offering equivalent yields. greater; losses may be more substantial too.
Frontier markets  erivatives such as futures or options can
D
Less developed countries within the emerging also be used to gear an investment portfolio.
markets. Investments in these countries may A small movement in the price of an underlying
be associated with higher risks, such as asset can make a large difference to the value
increased political instability and lower of a derivative, and dramatically increase the
liquidity, than more developed markets. returns. Also known as leverage.
Fund of funds Government agencies
Funds that invest in other funds, rather than A permanent organisation that is part of
investing directly in financial instruments. the wider structure of government and is
Fund of hedge funds responsible for oversight or administration
A fund that invests in a basket of underlying of a specific function, such as national
hedge funds. Funds of hedge funds are typically security or regulation of financial markets.
diversified across a number of different Government bond
strategies and underlying managers. A bond issued by a government.
Futures Gross redemption yield
An agreement to buy or sell an asset such The total return you could receive on a bond
as a bond or equity, on a specific date in including the interest or coupon plus any
the future at a price agreed today. capital growth.

Simple guide to financial terms 7

 H I
Hedge fund Income distribution
A collective name for funds targeting absolute The distribution of income to unit holders
returns through investment in financial markets of pooled funds in proportion to the number
and/or applying non-traditional portfolio of units held.
management techniques. Hedge funds can
invest using a broad array of strategies, Income units
ranging from conservative to aggressive. A holding in a pooled fund that pays out
interest or dividends to investors, rather than
High yield bond re-investing them back into the fund. See also
A speculative bond with a credit rating below Accumulation units.
investment grade bonds. Generally, the higher
the risk of default by the bond issuer, the Index linked bonds
greater the interest or coupon. Bonds where coupon and capital payments are
linked to movements in inflation. The inflation
Historic yield measure used is specified beforehand.
The distributions declared over the past
12 months expressed as a percentage of Inflation
the mid-market price, as at the date shown. A measure of the increase in prices of goods
It does not include any preliminary charge and services over time.
and investors may be subject to tax on Information ratio
the distribution. A measure of how well a manager has
 o, for example, if a bond has paid £10 over
S performed relative to the level of risk they
the last year, and the current price is £100, have taken.
the historic yield is 10%. Interest rate swap
A type of swap. The most common form of
interest rate swap is where one party pays a
fixed rate of interest in return for a floating rate.

Investment grade bonds

The highest quality bonds as assessed by a
credit ratings agency. To be deemed investment
grade, a bond must have a credit rating of at
least BBB (Standard & Poor’s) or Baa3 (Moody’s).

8 Simple guide to financial terms

 I K
Investment trust Key Investor Information Document (KIID)
An investment trust is a closed ended collective A two-page document, required for funds
investment scheme with a limited number of that come under EU law, that has replaced
shares that pools together assets of a number the Simplified Prospectus. It should be written
of different investors with the aim of increasing in plain English and is designed to allow
flexibility and lowering costs. comparability across funds and includes
the investment objective, key risks, ongoing
 hey are companies that trade in their own
T charges figure and past performance.
right which means that the price of the shares
are subject to supply and demand. Unlike an
open ended fund, the manager does not have
to deal with fund flows and therefore never
a forced seller/buyer.

Investment universe
The total range of investments from which
a fund manager can pick – as defined by
a fund’s stated investment objective.

Individual Savings Account (ISA)

ISA is basically a type of tax-free savings
account. There are two main types, a Cash
ISA and a Stocks and Shares ISA. You can put
money into a Cash ISA and you don’t pay tax
on any interest you receive. Invest in a Stock
and Shares ISA, and you don’t pay tax on any
further dividends or capital gains.

Simple guide to financial terms 9

 L M
Large cap Macroeconomic
See Market Capitalisation. Refers to the behaviour and drivers of an
economy as a whole. Factors studied include
Leverage (gearing) inflation, unemployment, etc. As opposed
Leverage usually refers to a fund being to microeconomic: the behaviour of small
exposed by more than 100% of its net asset economic units, such as individual consumers
value to assets or markets. The aim may be to or households.
take on more risk in order to generate higher
returns, or it may actually be to reduce risk Market capitalisation
in the portfolio. It is achieved by combining A measure of a company’s size, calculated
derivatives with more traditional equity or by multiplying the total number of shares in
bond investments. issue by the current share price. Companies
are commonly grouped according to size,
Confusingly, leverage can also be used to refer such as small cap, mid cap, large cap or all cap.
to the amount a company is funded through There is no consensus on the definition of these
borrowing, i.e. how much money it owes groupings and they may vary from fund to fund
compared to how much money or assets depending on the country of investment.
it owns. This is also described as ‘gearing’.
Market risk
Liquidity The possibility that the value of an investment
The ease with which an asset can be sold for will fall due to a general decline in the financial
cash. An asset can be described as illiquid if it markets. Beta is the measure of how much
takes a long time to sell, such as property, or market risk a stock faces.
if it is difficult to find someone willing to buy it.
Maturity
Long/short strategy The date when the original amount invested
A strategy, used primarily by hedge funds, in a bond is repaid. Maturity can also mean
that involves taking long positions the end of the life of a future or option.
(buying a holding) in stocks that are expected
to increase in value and short positions Mid cap
(borrowing a stock you don’t own and selling See Market Capitalisation.
it in the hope of repurchasing it at a lower
price to return to the stock lender) in stocks MiFID
that are expected to decrease in value. Markets in Financial Instruments Directive
(MiFID) is an EU Directive that came into force
on 1 November 2007 across the European
Economic Area. It was designed to harmonise
financial markets across the EU, and create
a consistent approach to their regulation.

Modified duration
A formula to determine the approximate
percentage change in the value of a bond
in response to a 1% change in interest rates.
See also duration.

10 Simple guide to financial terms

 M N
Momentum investing NURS
An investment strategy that is based on the Non-UCITS Retail Schemes (NURS) are funds
idea that perceived trends (such as a rising or set up and managed in accordance with FCA
falling share price) are more likely to continue regulations for such schemes. NURS rules allow
than reverse. A momentum investor tries to funds to access additional asset classes over
make gains by buying shares that are going and above UCITS.
up in value, as they believe the share price will
continue to rise.

Money market instruments

A short term debt instrument, issued by
a government or company as a way to raise
money. They usually have a maturity date
of less than a year

Mortgage-backed security (MBS)

Similar to an asset-backed security, this is a
security that pools mortgage repayments to
effectively allow investment markets to lend to
homeowners or businesses through financial
institutions, who may not be willing to take on
the risk of issuing mortgages themselves.

Multi-manager fund
A multi-manager fund invests in a range of
different funds. This type of fund offers the
investor a diversification of manager style and
skill. However, higher management costs are
associated with these kinds of funds.
Mutual fund
A professionally managed collective investment
scheme that pools money from a large number
of investors.

Simple guide to financial terms 11

 O
OEIC (Open-ended investment company) OTC (over the counter)
A type of investment fund, structured as Trading of equities, bonds, commodities
a company, that can create shares for new or derivatives directly between two parties,
investors and which will buy shares back rather than through an exchange.
from an investor if they wish to sell.
Overlay
Offer price The application of a strategy, usually based
The price a seller is willing to accept for the on derivatives or currencies, on top of an
sale of a security. In the context of funds, investment portfolio management style.
it is the price paid by the investor when This can be used to hedge risk or generate
buying a share or a unit in a dual priced fund. additional income, for example.
See also bid price.
Overweight
Ongoing Charges Figure (OCF) When a portfolio or fund has a greater
The OCF is made up of the Annual Management percentage weighting in an asset class, sector,
Charge (AMC) and other operating costs.  geographical region or stock than the index
or benchmark against which it is measured.
 he AMC is levied by the manager and is used
T
to pay the investment manager, financial
adviser and distributor. Other operating costs
include the costs for other services paid for
by the fund, such as the fees paid to the
trustee (or depositary), custodian, auditor
and regulator.
Open-ended spread of fund
This refers to a pooled investment vehicle, such
as a unit trust or OEIC that can issue unlimited
numbers of units or shares. This means the
number of units or shares in the fund goes up as
money is put in and goes down as it is taken out.
Options
When you buy or sell an asset, you have the
right (but not the obligation) to buy a particular
asset at an agreed price, on or before the date
when your option expires.
Option adjusted
A way of calculating the value of a fixed-income
security, such as a bond, that contains an
embedded option. For example, when the bond
issuer has the option to repay a loan early, that
is an embedded option and it will affect the
value of the bond.

12 Simple guide to financial terms

 P
Par value Price-to-earnings ratio
The face value of a security as opposed to its A ratio used to value a company’s shares.
current market price. In the case of a bond It is calculated by dividing the current market
it represents the principal sum due at maturity. price by the earnings per share.
Passive management Private equity
A style of investment management that Equity securities of companies that are not
aims to replicate the performance of a set listed on a public exchange. Transfer of
benchmark. See also active management. private equity is strictly regulated; therefore
any investor looking to sell his/her stake in
Peer group a private company has to find a buyer in the
A group of funds that may be compared with absence of a marketplace.
one another, often for performance purposes.
A peer group will usually be based on the funds’
investment scope, for example US equity funds.
PEP (Personal Equity Plan)
A PEP was a type of tax-free savings account,
similar to a Stocks and Shares ISA. You can
no longer open a PEP and, in April 2008, all
remaining PEPs were converted into Stocks
and Shares ISAs.
Physical commodity
The actual commodity, such as gold, oil or
wheat. Much of the trade in commodities
markets is in financial contracts that are linked
to the price of the commodity, rather than the
delivery of the physical product.
Predicted tracking error
Tracking Error is a measure of how closely an
investment portfolio follows the index against
which it is benchmarked. If a model is used
to predict this (rather than it being measured
historically) it is called predicted or ex ante.
See also realised tracking error.
Price-to-book value
The ratio used to compare a company’s share
price with its book value (the book value is
the actual value of the company assets minus
its liabilities).

Simple guide to financial terms 13

 Q R
Quartile Real Return
A measure of how an investment is performing The return generated by an investment, having
in its peer group. For example, a Top Quartile been adjusted for the effects of inflation. If an
fund would be in the top 25% of funds in its investment grew in value by 5% return over one
peer group. year, and the rate of inflation was 2%, the real
return would be 3%.
Real yield
The return on an investment minus the effect
of inflation. Therefore, if the return on an
investment is 7% with inflation at 3%, then the
real yield is 4%.
Realised tracking error
Tracking Error is a measure of how closely an
investment portfolio follows the index against
which it is benchmarked. If the tracking error
is measured historically it is called realised or
ex post. See also predicted tracking error.
Redemption
The repayment of the principal sum at maturity
of an investment.
Redemption yield
The yield is the return earned on a bond.
The redemption yield allows for any gain or
loss of the original capital, which is paid back
on the date of maturity.
 he return on a bond if it is held to its maturity
T
date, reflecting not only the interest payments
a bondholder will receive, but also the gain/loss
made when it matures. Yield calculations on
bonds aim to show the return as a percentage
of either its nominal value or its current price.
Return on equity
A measure of the profitability of a company.
Effectively, how much profit a company
generates with the money shareholders have
invested. For example, if a company’s equity is
valued at £10 million and it makes a profit of
£1 million, the return on equity or ROE is 10%.

14 Simple guide to financial terms

 R S
Rights issue Security
When existing shareholders are given the right General term for an equity or debt instrument
to purchase new shares in a company within issued by a government or company.
a given period, in proportion to their existing
holding, at a given price (usually at a discount). Sharpe ratio
A measure of risk-adjusted performance.
Risk The higher the ratio, the better risk-adjusted
The chance of incurring a loss from performance has been.
an investment.
Short selling (also referred to as shorting,
Risk premium (plural: premia) taking a short position, going short)
The extra return over cash that an investor Selling assets that you have borrowed from a
expects to earn as compensation for owning third party, and then buying them back at a later
an investment that is not risk free, so its value date to return to the lender. The short seller
could go down as well as up. There are some hopes to profit from a decline in the price of the
risk premia where the extra return expected assets between the sale and the repurchase.
is over and above the return earned from
another risk premium. For example, the small Small cap
company share risk premium is the extra See Market Capitalisation.
return an investor expects to receive over
Standard deviation
and above the return from large company
A measure of historical volatility. It is calculated
shares as compensation for investing in
by comparing the average (or mean) return
higher risk small companies.
with the average variance from that return.

Structured product
A structured product is a ‘pre-packaged’
product which offers a clearly defined,
formulaic return based on specific
investment parameters. Structured products
use derivatives and can be designed to offer
either income, participation, growth, or even
a combination, linked to the performance
of an underlying asset class (or classes).

Swaps
A derivative in which two parties exchange certain
benefits of each other’s financial instruments.

Synthetic Risk and Reward Indicator (SRRI)

A number between 1 and 7 shown on all Key
Investor Information Documents to allow
comparability of funds’ risk and reward profiles.
It is calculated based on the volatility of historic
or simulated fund returns. 1 is the lowest risk
rating and 7 is the highest.

Simple guide to financial terms 15

 T U
Top-down investing UCITS (Undertakings for Collective
An investment strategy which finds the best Investments in Transferable Securities)
sectors or industries to invest in, based on UCITS funds are authorised funds that can
analysis of the corporate sector as a whole be sold in any country in the EU. UCITS III
and general economic trends (as opposed regulations allow funds to invest in a wider
to bottom up investing). range of financial instruments, including
derivatives.
Total Expense Ratio (TER)
The total fees involved in managing and Underlying yield
operating a fund. The TER included the Reflects the annualised income net of expenses
annual management fee and other charges, of the fund as a percentage of the market unit
for example legal, admin, and audit costs. price of the fund as at the day shown. It is
Following the introduction of KIIDs, TERs based on a snapshot of the fund on that day.
have been replaced with OCFs. It does not include any preliminary charge and
investors may be subject to tax on distributions.
Total return
The total return on an investment, including Underweight
any capital appreciation (or depreciation) When a portfolio or fund has a lower
plus any income from interest or dividends. percentage weighting in an asset class, sector,
It is measured over a set period, and is given geographical region or stock than the index
as a percentage of the value of the investment or benchmark against which it is measured.
at the start of that period.
Unit trust
Tracking error A type of open-ended pooled investment
A measure of how closely an investment vehicle, or fund, which is structured as a trust.
portfolio follows the index against which it
is benchmarked. See also predicted tracking
error, realised tracking error, ex ante and
ex post.

16 Simple guide to financial terms

 V
Volatility Warrant
A statistical measure of the fluctuations A certificate, usually issued with a bond or
of a security’s price. It can also be used to share, that entitles the holder to buy ordinary
describe fluctuations in a particular market. shares at a fixed price, either over a period
High volatility is an indication of higher risk. of time or in perpetuity. Warrants are often
included as a sweetener to entice investors.

A warrant is freely transferable and can be

traded separately.

Simple guide to financial terms 17

 Y
Yield
A measure of the income return earned on an
investment. In the case of a share, the yield is
the annual dividend payment expressed as a
percentage of the market price of the share.
For property, it is the rental income as a
percentage of the capital value. For bonds,
the yield is the annual interest as a percentage
of the current market price.
Yield spread
The difference in yield between different types
of bonds (for example, between government
bonds and corporate bonds).
Yield to maturity
The rate of return anticipated on a bond if it is
held until the maturity date.

18 Simple guide to financial terms

Schroder Investment Management Limited
1 London Wall Place, London EC2Y 5AU, United Kingdom
Tel: +44 (0) 20 7658 6000

schroders.com
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Important information: This document is intended to document when taking individual investment and/or
be for information purposes only and it is not intended strategic decisions. Past performance is not a reliable
as promotional material in any respect. The material is indicator of future results, prices of shares and the income
not intended as an offer or solicitation for the purchase from them may fall as well as rise and investors may not
or sale of any financial instrument. The material is get back the amount originally invested. Schroders has
not intended to provide, and should not be relied expressed its own views in this document and these may
on for, accounting, legal or tax advice, or investment change. Issued by Schroder Investment Management
recommendations. Information herein is believed Limited, 1 London Wall Place, London EC2Y 5AU, which
to be reliable but Schroders does not warrant its is authorised and regulated by the Financial Conduct
completeness or accuracy. No responsibility can be Authority. For your security, communications may be
accepted for errors of fact or opinion. Reliance should taped or monitored. 401331
not be placed on the views and information in the