Schroders’ glossary is designed to help clarify terms used in investment literature and online content.

This guide has been created for investors to help 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.

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.


Absolute Return Funds
Funds which are managed with an objective of generating a positive return over a certain period of time. 
Absolute return strategy
An absolute return investment strategy aims to deliver positive returns in a wide range of market conditions, rather than simply aiming to outperform a benchmark index.
Active management
An investment management approach where a manager aims to beat the market through research, analysis and their own judgement. See also Passive management.
Active risk
To try to beat the returns of the benchmark the active investment manager must take different investment positions to the benchmark. Where positions are different, risks are also different. The risk that the manager takes relative to the risk of the benchmark is known as active risk. The higher the level of active risk, the greater the chance that returns will deviate from the benchmark.
ADI (Authorised Deposit-taking Institution)
An Authorised Deposit-taking Institution, which include, Australian-owned banks, building societies, credit unions, foreign banks operating through subsidiaries in Australia, branches of foreign banks in Australia and other ADIs such as specialised credit card institutions (SCCIs).
A measure which can help you identify whether an actively managed portfolio has added value on a risk-adjusted basis relative to a benchmark index. A positive Alpha indicates that a manager has added value.
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.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) as amended from time to time.
Annualised return
For a period of greater than one year, a measure of the level of return that has been achieved on average each year.
The Australian Securities and Investments Commission administers the Corporations Act 2001, which sets out the law about how corporations must behave. ASIC is also responsible for consumer protection in financial products (including superannuation, life insurance, general insurance and deposit-taking credit); standards of information disclosure; and supervision of share, insurance and mortgage brokers; and trading in financial markets.
Asset allocation
The apportionment of a portfolio's assets between asset classes and/or markets. For example, a fund may hold a combination of shares, bonds and cash. The weightings given vary according to the investment objective and the investment outlook.
Asset-backed security (ABS)
An investment that derives its value and income payments from a pool of specific assets. This allows investors access to a diversified pool of assets that they would not otherwise be able to buy, for example loan repayments.
Asset class
Different types of investments are classified according to ‘asset classes’. Asset classes are normally divided into five groups: cash, fixed interest, property, equities (i.e. shares) and alternatives (e.g. commodities, agribusiness, infrastructure).
The ASX Limited is the operator of the Australian Securities Exchange. ASX has responsibility for monitoring participants’ (e.g. listed companies and brokers) conduct and compliance with its Operating Rules and the terms of its licences. This includes the making and supervision of Listing Rules and continuous disclosure by listed entities of information that is material to the market.


A standard, (usually an index or a market average) that an investment fund's performance can be measured against. Many funds are managed with reference to a stated benchmark.
Measures the average extent to which a fund moves relative to the broader market. The beta of a market is 1. A fund with a beta of more than 1 moves on average to a greater extent than the market. A fund with a beta of less than 1 moves on average to a lesser extent. If beta is a minus number, it is likely that the fund and the market move in opposite directions.
Bid price
The price a buyer is willing to pay. In the context of funds, it is the price received by the investor when redeeming a unit in a fund. See also offer price.
Provide a way for governments and companies to raise money from investors for current spending requirements. In exchange for an upfront payment from investors, a bond will typically commit the issuer to make annual interest payments and to repay the initial investment amount on maturity at a specified date in the future.
Book Cost
The original cost of an investment. While market prices may go up and down, the book cost remains the same.
Bottom up investing
Investment based on analysis of individual companies, whereby that company's history, management, and potential are considered more important than general market or sector trends (as opposed to top down investing).
Business Day
Any day excluding a Saturday or Sunday on which banks are open for business in Sydney.


Assets pledged as security against a loan. If the debt can't be repaid, the lender is entitled to take ownership of the collateral.
An asset class which encompasses a broad range of physical assets including oil and gas, metals and agricultural produce.
The constitution of the relevant Fund, is a formal document which outlines the terms of a scheme agreement. This is equivalent to a Trust Deed.
Corporate bond
Corporate bonds represent direct debt obligations of corporations in a tradeable (or bond) form. The issuer of a corporate bond agrees to pay a specified amount of interest (coupon) and principal on maturity of the bond to the bondholder.
Corporations Act
The Corporations Act 2001 (Cth) (the Corporations Act, or informally as the 'Corps' Act) is an act of the Commonwealth of Australia that sets out the laws dealing with business entities in Australia at federal and interstate level.
Correlation is a measure of how securities or asset classes move in relation to each other. Highly correlated investments tend to move up and down together while investments with low correlation tend to perform in different ways in different market conditions, providing investors with diversification benefits. Correlation is measured between 1 (perfect correlation) and -1 (perfect opposite correlation). A correlation coefficient of 0 suggests there is no correlation.
The regular interest payment paid on a bond. It is described as a percentage of the face value of an investment. So a bond with a face value of $100 with a 5% coupon will pay $5 a year.
Credit default swap (CDS)
A CDS is a derivative. It is a type of insurance against the default of debt. The buyer of a CDS pays a premium to a CDS seller in exchange for the insurance that if the debt defaults, the CDS seller will pay it to them. The CDS seller is speculating against the risk of default and hopes to make a profit from the premium payments. The higher the risk of default, the higher the premium.
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 credit ratings to issuers of debt - such as governments or companies. Well-known credit rating agencies include Standard & Poor's, Moody's and Fitch.
Credit Risk
The risk that a bond issuer will default on their contractual obligation to make interest payment to investors. Reflects the likelihood of default associated with the borrower (i.e. issuer of the security).
Currency Hedging
Reducing the risk of incurring losses through currency movements. This is typically achieved through the use of derivatives such as futures or options.
Currency Risk
The risk of loss through adverse currency movements where a fund invests in assets which are priced in a different currency or currencies to that which the fund is priced in.
Current Yield
The annual income from an investment, expressed as a percentage of the current price. For example, if a bond that is worth $100 gives you an annual income of $6, the current yield is 6%.


Dealing Day
A Business Day that has not been designated a ‘non-dealing day’ in accordance with this. View our non-dealing days here.
Default risk
The risk that a bond issuer will not be able to meet their debt payments and subsequently default on their contractual obligation to investors.
The collective name used for a broad class of financial instruments that derive their value from other underlying financial instruments. Futures, options and swaps are all types of derivative. Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes.
Developed markets
Countries that tend to be industrialised and have a high gross domestic product. Developed markets usually have high standards of living and stable economies, and are considered safer for investment than less developed markets.
Creating a portfolio from a range of different assets. This reduces the risk of loss through exposure to any individual asset and can help to reduce overall portfolio risk where assets have a low correlation.
A payment made by a company to its shareholders. Investors who buy shares in a company have the opportunity to receive dividends (a share of the company’s profits).
Dividend yield
The annual dividend per share divided by the current share price. It is useful for comparing investments. For example, if a company's 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%.
The potential loss for a given investment.
A measure of a bond investment's sensitivity to changes in interest rates. The longer the duration, the more sensitive it is. Calculating 'duration' for a fixed income investment such as a bond is a complicated sum. It takes into account the current value of the bond, the coupon or interest payment, the book cost, and the number of years the bond has left to run. Put simply, the higher the duration number the higher the potential return (and the greater the risk).
Dynamic Asset Allocation
A strategy that involves rebalancing the mix of assets in a portfolio as markets rise and fall, and according to the manager's expected outcome for different assets ahead. In other words, if the manager expects equities to outperform in the month ahead, he or she will increase exposure. This is opposite to passive asset allocation – where either a) an asset mix is set long term (e.g. 60% equities; 40% bonds), or where the portfolio's asset mix only changes in line with something else (for example the breakdown of different markets in the benchmark).


Earnings growth
The percentage change in a company's earnings per share, generally measured over one year.
Earnings per share (EPS)
The profits of a company attributed to each share, calculated by dividing profits after tax by the number of shares.
Earnings yield
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 10 years is twice as volatile as a fund with a five-year duration.
Emerging Markets
Developing countries around the world which are characterised by a stronger growth potential than mature economies. The investable universe of Emerging Markets is commonly defined by, but not limited to, the MSCI Emerging Markets Index.
Entry price
The price a seller is willing to accept for the sale of a security. In the context of funds, it is the price paid by the investor when buying a unit in a fund.
The term ‘equity’ refers to a security that infers part-ownership of an asset. If an investor has an equity investment, they own part of an asset, for example, a house or a company. Similarly, when an investor buys ordinary shares in a company, they effectively become a part-owner of that company and will share in its profits and losses.
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.
Ex dividend
Applied to an equity this shows that a dividend has been recently paid and that a purchaser will not receive it.
Ex post (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 ex post or realised tracking error. See also ex ante.


The Foreign Account Tax Compliance Act enacted by the United States which impose obligations including the collection and reporting of certain information about US and US-owned investors to the US tax authorities.
Fixed income
Refers to securities such as bonds which carry a predetermined and fixed rate of interest (coupon). As opposed to the variable return on equities.
Flat yield
When short-term and long-term bonds are offering equivalent yields.
Frontier markets
Less developed countries within the emerging markets. Investments in these countries may be associated with higher risks, such as increased political instability and lower liquidity, than more developed markets. Frontier countries which are defined by, but not limited to, the MSCI Frontier Markets Index.
The common name given to Managed Investment Schemes (MIS), also known as a unit trust, which is a vehicle where money is pooled together from a number of investors and divided into parcels called “units”. The investors subscribe for units in much the same way as shareholders in a company subscribe for shares.
Fund of funds
Funds that invest in other funds, rather than investing directly in financial instruments.
An agreement to buy or sell an asset such as a bond or equity, on a specific date in the future at a price agreed today.


Borrowing money to invest, with the aim of increasing returns. For example, if you invest $100 and make a 5% return you make $5. Borrow an extra $20 to invest and you make $6 (minus the cost of borrowing the money). However, with gearing comes a higher degree of risk. Whilst the potential for growth may be greater; losses may be more substantial too. Derivatives such as futures or options can also be used to gear an investment portfolio. A small movement in the price of an underlying asset can make a large difference to the value of a derivative, and dramatically increase the returns. Also known as leverage.
Government agencies
A permanent organisation that is part of the wider structure of government and is responsible for oversight or administration of a specific function, such as national security or regulation of financial markets.
Government bonds
A bond issued by a government.
Growth investing is a style of investing which focuses on stocks exhibiting strong earnings expansion and high profit expectations, regardless of their valuation.
Any goods or services tax, consumptions tax, value-added tax or similar impost or duty which is or may be levied or becomes payable in connection with the supply of goods or services.


High yield bond
A speculative bond with a credit rating below investment grade. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds to compensate for the risk.


Investor Directed Portfolio Services (IDPS) are custodial, transactional and consolidated reporting services, which are often referred to as master funds, master trusts or wrap services. An IDPS allows the investor to manage and retain control of their investment portfolio, plus have access to a range of different investments through one service provider, with the advantage of consolidated tax, transaction and performance reporting.
Income distribution
The distribution of income to unit holders of pooled funds in proportion to the number of units held.
Index-linked bonds
Bonds where coupon and capital payments are linked to movements in inflation. The inflation measure used is specified beforehand.
A measure of the increase in prices of goods and services over time.
Information ratio
A measure of how well a manager has performed relative to the level of risk they have taken.
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).
Investment universe
The total range of investments from which a fund manager can pick - as defined by a fund's stated investment objective.


Large cap
See Market Capitalisation.
Leverage (gearing)
Leverage usually refers to a fund being exposed by more than 100% of its net asset value to assets or markets. The aim may be to take on more risk in order to generate higher returns, or it may actually be to reduce risk in the portfolio. It is achieved by combining derivatives with more traditional equity or bond investments. Confusingly, leverage can also be used to refer to the amount a company is funded through borrowing, i.e. how much money it owes compared to how much money or assets it owns. This is also described as 'gearing'.
The ease with which an asset can be sold for cash. An asset can be described as illiquid if it takes a long time to sell, such as property, or if it is difficult to find someone willing to buy it.
Long/short strategy
A strategy, used primarily by hedge funds, that involves taking long positions (buying a holding) in stocks that are expected to increase in value and short positions (borrowing a stock you don't own and selling it in the hope of repurchasing it at a lower price to return to the stock lender) in stocks that are expected to decrease in value.


Refers to the behaviour and drivers of an economy as a whole. Factors studied include inflation, unemployment, etc. As opposed to microeconomic: the behaviour of small economic units, such as individual consumers or households.
Managed Investment Schemes (MIS)
Managed investment schemes are also known as 'managed funds', 'pooled investments' or 'collective investments'. Generally in a managed investment scheme:
• people are brought together to contribute money to get an interest in the scheme ('interests' in a scheme are a type of 'financial product' and are regulated by the Corporations Act 2001)
• money is pooled together with other investors (often many hundreds or thousands of investors) or used in a common enterprise  
• a 'responsible entity' operates the scheme. Investors do not have day to day control over the operation of the scheme.
Management fee
Your investment management company charges a management fee ususally expressed as a percentage per annum of the amount invested. This is accrued daily and reflected in the Unit Price.
Market capitalisation
A measure of a company's size, calculated by multiplying the total number of shares on issue by the current share price. Companies are commonly grouped according to size as small cap, mid cap or large cap. There is no consensus on the monetary boundaries of these ranges but as a rough guide in the US market: large cap is over $10 billion, mid cap is $2 billion–$10 billion and small cap is $250 million–$2 billion.
Market risk
The possibility that the value of an investment will fall due to a general decline in the financial markets. Beta is the measure of how much market risk a stock faces.
The date when the original amount invested in a bond is repaid. Maturity can also mean the end of the life of a future or option.
The mFund Settlement Service offered by ASX. An mFund product is an unlisted managed fund admitted for settlement under the ASX Operating Rules and available to investors through the mFund Settlement Service.
Mid cap
See also Market Capitalisation.
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.
Momentum investing
An investment strategy that is based on the idea that perceived trends (such as a rising or falling share price) are more likely to continue than reverse. A momentum investor tries to make gains by buying shares that are going up in value, as they believe the share price will continue to rise.
Mortgage-backed security (MBS)
Similar to an (see) 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 there are higher management costs.
Mutual fund
A professionally managed collective investment scheme that pools money from a large number of investors.


NAV or Net Asset Value
The total assets minus the total liabilities of the relevant Fund, units or portfolio in question, as determined in accordance with the Constitution.
Non-dealing Day
A day on which funds are not priced and instructions received are not processed until the following business day (Link: calendar of non-dealing days). Schroders may take into consideration a Fund’s ability to access investment markets in designating certain Business Days as Non-Dealing days. The factors taken into consideration include whether relevant local stock exchanges and / or Regulated Markets are open for trading and settlement and a Fund’s exposure to those markets.


Option adjusted spread of fund
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.
When you buy an option, 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.
OTC (over the counter) contracts
Trading of equities, bonds, commodities or derivatives directly between two parties, rather than through an exchange.
The application of a strategy, usually based on derivatives or currencies, on top of an investment portfolio management style. This can be used to hedge risk or generate additional income, for example.
When a portfolio or fund has a greater percentage weighting in an asset class, sector, geographical region or stock than the index or benchmark against which it is measured.


Par value
This is the face value of a security as opposed to its market value. In the case of a bond it represents the principal sum due on maturity.
Passive management
A style of investment management that aims to replicate the performance of a set benchmark. See also active management.
Peer group
A group of funds that may be compared with one another, often for performance purposes. A peer group will usually be based on the funds' investment scope, for example US equity funds.
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).
Price-to-earnings ratio
A ratio used to value a company's shares. It is calculated by dividing the current market price by the earnings per share.
Privacy Act
The Privacy Act 1988 (Privacy Act) regulates how private and public entities collect, store, use and disclose personal information. The Privacy Commissioner ensures that organisations comply with their obligations under the Privacy Act.
Private equity
Equity securities of companies that are not listed on a public exchange. Transfer of private equity is strictly regulated; therefore, any investor looking to sell his/her stake in a private company has to find a buyer in the absence of a marketplace.


Schroders’ Quantitative Equities Products investment team.
Quality investing which is a style of investment strategy which seeks to focus on quality companies with stable growth that are financially strong.


Real Return
The return generated by an investment, having been adjusted for the effects of inflation. If an investment grew in value by 5% return over one 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.
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. The return on a bond if it is held to its maturity 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.
Responsible Entity
A responsible entity is a peculiarly Australian invention designed to replace the manager/trustee in managed investment schemes. It was created by the Managed Investments Act 1998. The Responsible Entity of the Fund is Schroder Investment Management Australia Limited.
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%.
Rights Issue
When existing shareholders are given the right to purchase new shares in a company within a given period, in proportion to their existing holding, at a given price (usually at a discount).
The chance of incurring a loss from an investment.
A “reduced input tax credit” as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) as amended from time to time.
Risk premium (plural: premia)
The extra return over cash that an investor expects to earn as compensation for owning an investment that is not risk free, so its value could go down as well as up. There are some risk premia where the extra return expected is over and above the return earned from another risk premium. For example, the small company share risk premium is the extra return an investor expects to receive over and above the return from large company shares as compensation for investing in higher risk small companies.


General term for an equity or debt instrument issued by a government or company.
Sharpe ratio
A measure of risk-adjusted performance. The higher the ratio, the better risk-adjusted performance has been.
Short selling (also referred to as shorting, taking a short position, going short)
Selling assets that you have borrowed from a third party, and then buying them back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase.
Small cap
Small cap See Market Capitalisation.
Standard deviation
A measure of historical volatility. It is calculated by comparing the average (or mean) return with the average variance from that return.
A derivative in which two parties exchange certain benefits of each other's financial instruments. These are traded over the counter (OTC).


Top-down investing
An investment strategy which finds the best sectors or industries to invest in, based on analysis of the corporate sector as a whole and general economic trends (as opposed to bottom up investing).
Total return
The total return on an investment, including any capital appreciation (or depreciation) plus any income from interest or dividends. It is measured over a set period, and is given as a percentage of the value of the investment at the start of that period.
Tracking error
A measure of how closely an investment portfolio follows the index against which it is benchmarked. See also predicted tracking error, realised tracking error, ex ante and ex post.


Underlying yield
Reflects the annualised income net of expenses of the fund as a percentage of the market unit price of the fund as at the day shown. It is based on a snapshot of the fund on that day. It does not include any preliminary charge and investors may be subject to tax on distributions.
When a portfolio or fund has a lower percentage weighting in an asset class, sector, geographical region or stock than the index or benchmark against which it is measured.
Unit trust
A type of open-ended pooled investment vehicle, or fund, which is structured as a trust.


Value investing is a style of investment strategy which focuses on companies whose shares appear underpriced; these may include shares that are trading at, for example, high dividend yields or low price-to-earning or price-to-book ratios.
A statistical measure of the fluctuations of a security's price. It can also be used to describe fluctuations in a particular market. High volatility is an indication of higher risk.


A certificate, usually issued with a bond or share, that entitles the holder to buy ordinary shares at a fixed price, either over a period 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.


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.