Also known as a target return fund, these are investment vehicles aiming to deliver positive returns whatever the market is doing. They are often compared to hedge funds during bear market periods. Some of the better known examples include products from GMO and Firetrail Investments.
A term applied to exchange traded funds or managed funds whose units and weightings are altered by a management team or fund manager. While these funds have the potential to beat the market, their fees are usually higher.
All Ordinaries Accumulation Index
The All Ordinaries index, including the value of reinvested cash dividends. The S&P/ASX 200 equivalent is called the “gross total return” index.
All Ordinaries Index
Considered a barometer for the Australian stock market. It contains the 500 largest listed companies and is generally reweighted every quarter to account for delistings and market capitalisation changes. See below definition for a variation on this theme.
The average amount earned by an investment each year over a certain period of time if the annual return was compounded. For example, the 10-year historical return of a managed fund is its annualised return (whereas last year’s individual result is just the annual return).
A company's yearly report to shareholders, documenting its activities, finances, and often, its outlook for the year ahead. It is also treated as a source of truth by current and prospective investors.
The income received from an investment divided by the length of time the investment is owned. Also sometimes known as the effective annual rate in some economics textbooks.
The process of dividing or spreading your investment across various asset classes including equities, fixed income, commodities, private equity, cryptocurrencies etc. The concept assists in balancing risks and returns in a portfolio.
An item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies. Your house, car and even your TV are all potential assets.
ASX ticker code
A three letter acronym used to define share prices for companies. It's also used to identify options, warrants, and some ETFs. Some are self explanatory (BHP, CSL) while others are more creative (FUN).
Limit orders set the maximum or minimum price at which you are willing to buy or sell. It serves as an upper or lower bound for securities transactions. See below definition for total contrast.
The total contrast to “at limit” - an order typically used by investors who seek immediate execution of their desired transaction. By its very nature, it can only be processed during market hours and is usually designed to be fulfilled very quickly.
Australian Real Estate Investment Trusts (A-REITs)
A publicly traded company that owns, operates or finances income-producing properties. The best known Australian examples include industrials powerhouse Goodman Group, diverse play Charter Hall and retail giants Scentre Group and Vicinity Centres.
Australian Securities and Investments Commission (ASIC)
Australia's finance and markets regulator. Its main role is to enforce laws that protect investors and consumers. They were heavily involved during the royal commission into banking misconduct.
Australian Stock Exchange (ASX)
The largest equities, options and warrants exchange in Australia, created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It’s also one of the world’s top 10 listed exchange groups measured by market capitalisation.
One hundredth of one percentage point. In financial markets, this is usually most important for currency and fixed income traders as it explains the move in parts of a percentage instead of whole dollars and cents. Central banks also speak of cash rate targets in these terms (e.g. the RBA has raised the cash rate target by 25 basis points).
A sentiment pegged to individual investors in that you believe that a market, asset or financial instrument is going to experience a downward trajectory. Being bearish does not require the presence of a bear market nor does it need to be index or asset class-specific.
The opposite of a bull market – referring to a market that is falling, usually with a pessimistic mood among investors. The general definition of a bear market is one that has fallen 20% from recent highs. However, the parameters of recent could be dependent on the individual investor’s perspective.
Behind The Curve
A markets-specific term to suggest central banks were too slow to fight rising inflation.
A benchmark is a standard against which the performance of a security, mutual fund, or investment manager can be measured. For instance, a fund can be index aware (that is, trying to beat the All Ordinaries performance), cash rate aware (that is, trying to beat the Reserve Bank’s current cash rate target) or even benchmark unaware (that is, greater emphasis on stock picking).
A way of measuring a stock's volatility compared with the overall market's volatility. A print greater than one for an individual name suggests the stock is more volatile than the overall market while a print less than one suggests the stock is less volatile than the index.
Considered to be a reliable investment. The companies behind them are generally well-established and financially sound. Blue-chip companies are picked to weather downturns and operate profitably in the face of adverse economic conditions. The most famous examples on the Australian market are the Big Four banks and some of the consumer staples.
An investor lends money to a company or government for a set period of time, in exchange for regular interest payments. Once the bond reaches maturity, the issuer returns the investor’s money. The yield on a bond is also used as a valuation tool for equities as well as a barometer on how investors feel about investment opportunities.
An investor with a positive outlook on markets. An investor who is feeling bullish is likely to take higher risk bets on rising asset prices.
This term refers to a market that is rising, usually with an optimistic mood among investors. The generally accepted definition of a bull market is one that’s rallied at least 20% from its lows, though some insist it must have also passed previous highs.
Refers to the repurchasing of shares of stock by the company that issued them. This leads to a reduction in the total number of shares on issue. It is also generally seen as a way for companies to boost shareholder return.
The removal of a listed security from a stock exchange. The delisting of a security can be voluntary or involuntary and usually results when a company ceases operations, declares bankruptcy or does not meet listing requirements. Major mergers and acquisitions can also result in one or more companies delisting.
A distribution of cash or stock to a class of shareholders in a company. Some companies choose to pay dividends twice a year, others once a year and others yet don’t pay one at all. Payouts are also not guaranteed and the size of the dividend can also vary. See below for variations on dividend definitions.
The process of eliminating double taxation on cash payouts from companies to their shareholders. This reduces the individual investor’s tax bill, but it’s not used widely. In fact, Australia is one of very few countries to have a full imputation system under law.
Dividend Reinvestment Plan (DRP)
A concept allowing the investor to increase their stake in a company over time by automatically reinvesting cash dividends in new shares rather than receiving the dividends in cash.
A dividend expressed as a percentage of a current share price. Some fund managers and income minded stock pickers use it as a binding metric – especially if there can be comparisons between industry rivals.
Another term for net income after tax. Arguably the single most important and most closely studied number in a company's financial statements. It shows a company's real profitability compared to analyst estimates or investor expectations. See earnings per share.
Earnings Per Share (EPS)
A metric investors commonly use to value a stock or company. EPS is calculated by subtracting any preferred dividends from a company's net income and dividing that amount by the number of shares outstanding. The metric is more widely used in the US than it is in Australia, as Wall Street analysts tend to peg company forecasts on this figure.
Exchange Traded Funds (ETF)
A portfolio of assets (‘fund’) that can be bought or sold on a stock exchange, such as the ASX. An ETF is open-ended, which means that units of the fund can be freely issued and purchased. This allows a market maker to ensure that the market price for units remains close to the net asset value per share.
This differs from a closed ended fund such as a listed investment company (LIC) or listed investment trust (LIT), which can only issue new units through a capital raising such as a rights issue or share purchase plan. A closed ended fund can only retire units in the fund through a buyback.
Describes a stock that is trading without the value of the next dividend payment. See ex-dividend date.
Set usually one business day before the record date. If you purchase a stock on its ex-dividend date or after, you will not be eligible to receive that particular payout. Shares in stocks that trade ex-dividend tend to fall on the record date as some investors choose to cash out.
An unchanging rate charged on a liability, such as a loan or mortgage. It might apply during the entire term of the loan or for only a set proportion of that period. Investors who take up fixed interest loans are also betting that rates will not decline past the existing level. See hybrids.
When a company offers shares for sale on the stock market for the first time. See IPO. It could also refer to the free fluctuations in a currency’s value.
A way for central banks to forecast when they expect to hike or cut interest rates materially (that is, either pegged to a particular period of time or to a specific set of criteria).
Payouts which include a special credit which declares the amount of tax the company has already paid. Dividends can be fully franked, partially franked or not franked at all, with the decision resting on each individual company’s management. Sometimes also known as imputation credits.
A form of equity or debt analysis that focuses primarily on attributes of the company and the underlying business. This can include quantitative methods, which focus on measurable attributes such as profitability and balance sheet strength. It also includes qualitative methods, such as assessing the quality of management and the strength of a company’s competitive position.
A type of debt-based investment, where you loan money to a government in return for an agreed rate of interest. The price of a bond moves inversely to its yield – meaning a selloff in bonds will lead to a spike in yields.
Protecting against loss on an investment by making balancing or compensating transactions. There is a risk-reward in this process in that it could reduce potential risk but also chip away at potential gains.
A type of actively managed fund that focuses on high risk high return investments. Hedge funds invest very aggressively using leverage and shorting to try and increase their returns. Some of the more famous examples include Ray Dalio’s Bridgewater Associates and Ken Griffin’s Citadel.
A single financial security that combines two or more different financial instruments (eg elements of debt and and equity structures). While they can provide higher returns over the life of the instrument, they are also generally higher risk.
A measurement of the price performance of a group of shares from an exchange. For example, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange. Exchange traded funds (ETFs) are best known as index trackers, moving close to lockstep with day to day point moves.
Initial Public Offering (IPO)
Offering shares of a private corporation to the public in a new issuance. An IPO allows a company to raise capital from public investors for the first time. This process can be repeated for numerous stock exchanges and even parts of companies if they demerge or break apart.
The current value of the future cashflows that an asset will produce. Calculating intrinsic value requires making assumptions and predictions, and is therefore highly subjective. A company’s stock may trade at a price that’s higher or lower than an investor’s estimated intrinsic value, which can create an opportunity to buy or sell the company at a price that’s advantageous to the investor.
Ratio of a company's loan capital (debt) to the value of its ordinary shares. Sometimes known as gearing.
An order to buy or sell a security at a specific price or better. See at limit and limit order.
An instruction to execute a trade at a level that is more favourable than the current market price. There are two types of limit orders: entry orders (that open a new position) and closing orders (that terminate an existing position).
Refers to the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
Listed Investment Corporation (LIC)
Similar to a managed fund. The main difference is that investors can buy and sell shares in a LIC just like ordinary shares. However, LICs do not issue or cancel new shares as investors come and go. It also may pay a dividend being a listed company.
Refers to the purchase of an asset with the expectation it will increase in value. The “long” part of the position is usually in reference to the time that investment will be held on to.
Management Expense Ratio (MER)
The combined costs of managing a fund including operating expenses and taxes. Mutual funds provide important benefits but the main cost of investing in such a product is captured in this figure.
The total value of the outstanding shares in a company. A company with a higher market capitalisation can be thought of as a bigger or more valuable company. Indices are usually weighted based on the market capitalisation of the constituents.
An order to buy or sell securities immediately. Note this is a guarantee for a time to make a transaction and not to guarantee a price. See at market.
The price that it sells for on the open market at a given point in time. This number will usually fluctuate throughout the trading day as investors buy and sell stocks. See market order, at market, etc.
An occasion when two or more companies join together and the shareholders of one company receive shares in the other company or companies rather than payment in money. The largest ever of its kind was when Vodafone bought out industrials conglomerate Mannesmann for nearly $200B.
The total amount of money in circulation or in existence in a country.
A kind of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. It’s usually run by a group of money managers and/or an investment committee which actively adjust its settings.
Net Asset Value (NAV)
A fund's or company's total assets less its liabilities. It represents a “per-share” value of the fund, which makes it easier to be used for valuing and transacting in the fund shares.
Value of the position subtracting the initial cost of setting up the position. For example, if 100 options were purchased for $1 each and the option is currently trading for $9, the value of the net position is $900 - $100 = $800.
Net Tangible Assets (NTA)
A figure which indicates its book value based on the amount of its total assets less all liabilities and intangible assets. Calculated much like an equity stake but without the value of intangible assets such as good will.
Open Ended Fund
An investment scheme which can issue and redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself, rather than from the existing shareholders. The best known examples of open ended funds are mutual funds in the US or listed managed funds in Australia.
A contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset (usually a stock or index) at a specific price on or before a certain date. Options expiry dates are some of the most volatile on share markets given some trades may not be executed in time.
Sometimes known as common shares – stakes which are owned by people who have a right to vote at the company's meetings and will receive what’s left of the company's profits after the holders of preference shares have been paid.
The sale of shares or bonds to a limited number of private pre-selected investors to raise capital. Sometimes known as a private placement due to the exclusive nature of the transaction.
Price/Earnings Ratio (P/E)
The ratio for valuing a company that measures its current share price relative to its earnings per share. The figure is used as a valuation tool for publicly listed firms – especially to compare a company’s cost to that of the broader market or against its peers in the same sector. See earnings per share.
A trust fund, managed by an investment manager who invests in a range of residential, industrial, office and retail assets. Its income is generated by the assets of the trust and unit values will reflect the value of the trust assets.
A legal document that a company files with regulators which details a potential investment offering for sale to the public. While it provides a level of transparency to the public by outlining the company's background and intentions for listing, it does not preclude the need to do your own research.
A type of option that increases in value as a stock falls. Its appeal comes from an opportunity for its value to appreciate quickly on a small move in the stock price, and that feature makes them a favourite for traders who are looking to make big gains quickly. See options.
Setting a target for the value or amount of government bonds that a central bank plans to buy.
The most recent sale price of a stock, bond, or any other asset traded. In addition, most asset classes also quote the bid and ask price that determines the final sale price.
Real Estate Investment Trusts (REITs)
Investment vehicles which allow investors to earn dividends from a range of real estate investments—without having to buy, manage, or finance any properties themselves. See mutual funds, for which the concept is based on.
Return/Return on Investment (ROI)
A widely used financial metric for measuring the probability of gaining a return from an investment. The higher an investment’s ROI, the more favourable its gains will likely be against its costs.
The process of realigning the weightings of a portfolio of assets – it involves periodically buying or selling assets in a portfolio to maintain an original or desired level of asset allocation or risk. In the context of major stock market indices, it may also refer to the recalibration of an index’s components based on market capitalisation.
The possibility of something bad happening, - in this case, a loss of your investment.
Also called the aftermarket and follow on public offering, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Better known as the “stock market”.
A group of shares that are used to give an indication of a sector, exchange or economy. Well known examples include the S&P/ASX 200, FTSE 100 and the S&P 500. Note, share indices do not have any inherent value as it’s just a collection of its subcomponents.
One of the equal parts into which a company's capital is divided, entitling the holder (shareholders) to a proportion of the profits. Also known as stocks.
The current mission of most central banks - raise interest rates without engineering a recession.
A market-capitalisation weighted and float-adjusted stock market index of shares listed on the Australian Securities Exchange. The index is maintained by Standard & Poor's and is considered one of the benchmarks for Australian equity performance alongside the All Ordinaries.
A kind of policy where monetary policy is actively adjusted to achieve a specific rate of inflation.
A form of analysis that focuses on the behaviour of security prices and patterns that can be seen repeating in these prices. Technical analysis uses tools such as trend lines, resistance and support lines, and moving averages to predict the future price behaviour of a security.
Term Funding Facility
An Australian-specific way of offering low-cost three-year funding to financial institutions. The program, launched during the COVID-19 pandemic, had a huge effect on the number of home loans that could be written because the cost of writing those loans became so much cheaper.
Yield Curve Control
A program where the central bank commits to buy whatever amount of bonds the market wants to supply at its target price.