The top credit rating accorded by rating agencies such as the US’ Moody’s Investors Service and Standard & Poor’s.
The return that an asset achieves over a certain period of time. Absolute return strategies aim to produce a positive return, even when share markets are volatile, flat or falling.
Refers to a portfolio management strategy where the investment manager makes specific investments with the goal of outperforming an investment benchmark index.
Alpha is the return on an investment that is not a result of general movement in the greater market. It is a measure of the performance of a portfolio after adjusting for risk.
An accounting description of the writing-down of the book value of an asset over time, or the systematic repayment of a debt.
A wealthy individual who invests in private entrepreneurial firms. Although angels perform many of the same functions as venture capitalists, they invest their own capital rather than that of institutional and other individual investors.
A form of life insurance which operates to provide retirement income. The person who takes out the annuity pays the life office a lump sum and in return receives a series of payments.
The process of allocating the total investment between the different asset sectors such as shares, bonds (also known as fixed interest investments), property, cash and overseas investments. Asset allocation can also be referred to as the split between growth and income investments.
Refers to a grouping of securities with broad characteristics in common. These sectors include Australasian shares, international shares, property, cash, New Zealand fixed interest, international fixed interest, infrastructure and private capital (ie private equity).
The percentage of an investment held in each asset sector. Investment analysis is the outworking of asset allocation. Investment analysis shows the asset mix is a major factor in investment performance. An example of an asset mix is as follows: Australasian shares 27%, international shares 18%, property investments 15%, NZ fixed interest 35% and cash 5%. Asset mixes are applicable to both the total fund and individual products.
A fund or portfolio which invests in all major asset classes, ie cash, fixed interest, property and shares(domestic and international). It provides long term capital growth and a reasonable level of income.
One hundredth of 1 per cent: 100 basis points equals 1 per cent.
A market which is likely to fall; a situation where a dealer is more likely to sell an asset, even to the extent of selling assets which the dealer does not have. The bear hopes to close a short position by buying at a lower price than the assets they have contracted to deliver. The difference between the purchase price and the original sale price represents the successful bear's profit. Assets can be in the form of stock, currency or commodities.
The long-term ‘neutral’ asset mix within the limits (maximum and minimum) of the strategy range of a particular asset class. A benchmark provides a standard for measuring the individual fund manager’s investment performance. It is used by trustees to determine the investment option best suited to their profile. The benchmark index is the generally accepted market index, which is used to assess performance (eg S&P/NZX 50 Index).
A measure of the price volatility of a security or portfolio, compared with the market as a whole.
A debt security issued by entities such as corporations, governments or their agencies (eg statutory authorities). A bond holder is a creditor of the issuer, and not a shareholder.
Book to market ratio
The ratio of a firm’s accounting value (book value) of its equity to the value of the equity assigned by the market (ie the product of the number of shares outstanding and the share price).
The value of an asset as recorded in the books of account of an organisation.
A market which is likely to rise; a situation where a dealer is more likely to buy than sell stock/currency/commodities and therefore establish a bull position. A bull with a long position hopes to sell purchases at a higher price after the market has risen.
A management buy in (MBI) uses a leveraged buy out organised by new managers or a management team external to the business to buy into a company.
There are two major types of buy outs organised by the existing management of the company. A management buy out (MBO) involves the acquisition of a product or business from either a public or private entity through the assistance of a venture capital or private equity firm. Financing is usually through the provision of equity. A leveraged buy out (LBO) involves the acquisition of a product or business from either a public or private entity using a significant amount of debt and little or no equity (usually a ratio of 90% debt and 10% equity). In other words, the purchaser uses borrowed money for the acquisition, using the company’s assets as collateral for the loan.
When a company makes a call on shares it asks the holders of partly paid shares to contribute more money. A call in futures trading refers to a ‘margin call’. Funds can be placed on the money market ‘at call’ which means they have not been lodged for a fixed term.
The right, but not the obligation, to buy a financial instrument, such as a share or a commodity during a given period.
The value of an investment in a house or business, represented by total assets less total liabilities.
Capital Asset Pricing Model (CAPM)
A model that shows the relationship between expected risk and expected return on an investment, based on the accepted theory that the higher the risk associated with an investment, the higher the required return.
Capital growth fund
An investment fund which invests principally in assets most likely to increase in value, such as shares and property.
Capital guaranteed fund
A fund in which the original capital and the declared investment returns are guaranteed.
Capital stable option
A fund in which security is normally provided by a conservative investment policy concentrating on fixed interest or short term investments, which may be held to maturity or on which no capital losses are realised.
The debt and equity portfolio of a company balance sheet. Privately held companies can contain several levels (or tranches) of debt and equity in their capital structures.
Refers to a series of cash flows used to compute an internal rate of return (IRR) that is independent of any unrealised gains in the underlying investment. Without unrealised gains, the only flows returning to the investor are cash distributions and the current value of the investment, which is held at its cost basis.
Most private equity or infrastructure funds are closed-end vehicles. These are funds with a defined investment term, at the end of which all capital arising from the divestment of assets will be returned to the investors.
Commitment (or committed capital)
An obligation to provide a certain amount of capital to a fund. This will be requested or ‘drawn down’ by private equity managers on a deal-by-deal basis.
Commodities are any natural resource that is sold and traded. They are generally raw materials that are eventually used to produce other goods, such as crude oil, precious metals and agricultural products such as wheat and corn.
Securities that are convertible into the ordinary shares of a company at a pre set price or ratio at specified times. Convertible notes are attractive to some investors because they display certain properties of bonds and shares.
Security issued by a company in which the company acknowledges that a stated sum is owed and will be repaid at a certain date. A corporate bond, like a government-issued bond, usually pays a stipulated amount of interest throughout its life to the holder.
The value of an investment, not taking into account unrealised gains associated with market valuations. It consists of the amount of the original investment, any additional incremental investments, capitalised fees, retained earnings from the investment etc.
The annualized value of a bond’s regular interest rate repayments expressed as a percentage of a bond’s par value.
Consumer Price Index. A measurement taken quarterly of movements in the prices of a fixed list of goods and services. The CPI is used as a guide in adjusting award wages and other costs which are linked to the inflation rate.
A period when there is a sharp reduction in the availability of finance from banks and other financial institutions, particularly from small businesses. This usually occurs during a recession or tough economic times.
Credit downgrade or upgrade
A change to a company’s credit rating. An upgrade reflects a perceived heightened ability to meet debt obligations. A downgrade reflects a deterioration in the company’s perceived ability to repay debt.
Rating applied to a company’s debt or debt security that indicates the company’s relative creditworthiness. The most well-known ratings are issued by US ratings companies Moody’s Investors Services or Standard & Poor’s. Debt issuers pay these companies to rate their debt to make it easier to attract investors.
A financial security that represents borrowings that must be repaid by the issuer.
Failure to meet a debt obligation.
A type of annuity that pays an income starting from a future age or date.
Financial tool which enables investors to obtain returns from an investment in a market or a particular security without physically purchasing that security. They generally require a small deposit, can usually be bought or sold more quickly than physical securities and are generally much cheaper to transact. Derivatives can be used as a risk management tool or to speculate. They can provide key benefits in that they can improve liquidity and reduce transaction costs.
Sometimes known as Expansion Capital. See Expansion Capital definition.
The reduction in the percentage of equity owned by a company’s founders and existing shareholders as a result of a new financing round. The new round brings in new shareholders which dilutes the percentage ownership of current shareholders.
Taking a stake in a company or joint venture which brings a say in how the operation is run, although it does not necessarily give a controlling interest.
A private equity investment strategy that involves purchasing discounted bonds of a financially distressed firm. Distressed debt investors frequently convert their holdings into equity and become actively involved with the management of the distressed firm.
The process where funds are spread among classes of securities and geographical localities in order to distribute and control risk. As a result, the return on the portfolio as a whole varies less than the return on smaller lots of individual stocks.
An investment option which generally invests in more than three asset sectors.
The distribution of part of the earnings of a company to its shareholders.
Payments to private equity managers by investors in order to finance investments. Funds are drawn down from investors on a deal-by-deal basis.
Detailed research of a business, its management team and other factors to ensure the accuracy, soundness and completeness of its operations. A critical step in the investment selection process.
In fixed interest investments this is a measure of the portfolio’s sensitivity to interest rate changes. It takes into account the maturity date of a debt plus its coupon payments. As an indicator of risk, duration is useful for two reasons. First it provides a means of assessing the degree of mismatch between the assets and the benchmark or liabilities of a portfolio. Second, it provides an indication of portfolio volatility or risk.
Dynamic asset allocation (DAA)
A portfolio management strategy that involves rebalancing a portfolio to bring the asset mix back to its long-term target.
Interest or growth rate earned on amounts held in the superannuation plan (usually expressed as a percentage of each year).
The months of the year in which a majority of quarterly corporate earnings are released to the public. Earnings season is generally accepted as the months immediately following the quarter-ends of the year.
Earnings Before Interest, Taxes, Depreciation and Amortisation. This is an accounting measure of operational earnings that provides a more accurate view of the performance of a company’s core business versus the net earnings of a company. It is often used to compare firms with different levels of indebtedness.
A term used to define less developed economies. Characteristics which define emerging markets include a GNP (gross national product) per capita substantially below the average for developed economies (as benchmarked by the World Bank), markets are highly regulated, there are restrictions on foreign investments, and investment risk is perceived to be higher than for developed markets. Emerging markets are attractive due to the potentially high growth rates resulting from economic reform. Examples of some emerging market countries are Brazil, Argentina, Chile, Venezuela, Poland, Czechoslovakia, Russia, Hungary, Greece, South Africa, Turkey, Egypt, Israel, Indonesia, Korea, Malaysia, Taiwan, China and Philippines.
Direct communication between investors and companies on environmental, social and governance (ESG) issues. It is a way shareholders can use their influence to encourage companies to behave responsibly and manage the various ESG risks they face.
Enterprise value (EV)
A measure of a company's value, calculated by: market capitalisation plus debt and preferred shares minus cash and cash equivalents. It is the theoretical takeover price that a buyer would pay for a company less the cash.
Enterprise multiple (EV/EBITDA)
A ratio used to determine the value of a company. The enterprise-multiple takes debt into account, something which other multiples like the P/E ratio do not include. A company with a low enterprise multiple can be viewed as undervalued and therefore a good takeover candidate.
A carve-out is when a company sells a minority (normally 20% or less) stake in a subsidiary for an IPO (initial public offer) or rights offering.
A transaction in which a small number of shares or warrants are added to what is primarily a debt financing.
Equity ownership structure
A schedule of who owns what type of equity of a specific investment. There are a variety of equity instruments available to owners of a company. These include preferred stock, common equity, equity options, equity warrants and convertible debt (that can be converted into equity).
Environmental, social and governance (ESG) is used to describe a group of issues that can have a material impact on the long-term success of the company and, potentially, investment returns. Environmental criteria looks at a company’s commitment to environmental sustainability and managing environmental risks such as climate change. Social criteria considers how a company manages relationships with its employees, suppliers, customers and the communities where it operates. Governance deals with issues such as a company’s leadership, executive pay, audits and internal controls, and shareholder rights.
Exchange traded fund (ETF)
An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.
In the private equity market this is referred to as capital required by an established company to fund the expansion of the business. This term is often used interchangeably with development capital.
Fair dividend rate (FDR)
The FIF (see foreign investment fund) rules apply the fair dividend rate method (‘FDR method’) as the default method of calculating income from FIF investments. Broadly, the FDR method calculates taxable income from a FIF as 5% of the market value of a New Zealand resident’s offshore shares held on 1 April each year.
The latest stated value of an investment. This could be based on the market value of the publicly traded securities or, if the investment has already sold, the sale price of the investment.
An investment strategy executed by private equity groups. Implementation of the strategy usually involves purchasing a company using a significant amount of leverage. Over time, the private equity manager seeks to reduce the leverage, causing profits and equity value to accelerate rapidly as debt is eliminated and interest payments are eliminated.
Use of debt to increase the expected return on equity. Financial leverage is measured by the ratio of debt to debt plus equity.
Financial Markets Authority (FMA)
The New Zealand government agency responsible for financial regulation. It is responsible for regulating all financial market participants, exchanges and the setting and enforcing of financial regulations.
Financial Markets Conduct Act (FMC Act)
The Financial Markets Conduct Act 2013 governs how financial products are created, promoted and sold, and the ongoing responsibilities of those who offer, deal and trade them. It aims to facilitate capital market activity, in order to help businesses to fund growth and individuals to reach their financial goals.
Interest paid on investments such as bonds and debentures, paid at a predetermined and unchanging rate for a specified period.
A float is to take a company public by issuing shares to investors outside the company. Once a company is floated its price is quoted on a recognised stock exchange, where ownership can be traded. (See also ‘Initial Public Offer’).
Floating interest rate
An interest rate that is allowed to move up and down with the rest of the market or along with an index.
Floating rate note
A security whose yield is periodically reset to a reference index rate to reflect changes in interest rates.
Foreign investment fund (FIF)
The FIF rules apply to offshore equity investments held by New Zealand residents. A FIF includes a share in a foreign company; units in foreign unit trusts or mutual funds; an interest in a foreign superannuation scheme or retirement plan; and an entitlement to benefit from a life insurance policy (typically only policies with a savings component) issued by a non-resident insurer. The FIF rules impose tax on the underlying income that is derived from, or accumulated in, such investments.
A fragmented industry is an industry which contains many small or relatively small competitors and no, or few, leaders in each relevant geographic and/or product market.
A fund whose principal activity consists of investing in other investment funds managed by several different investment managers. Capital is allocated among a number of funds which may utilise a variety of investment styles, creating a diverse vehicle for investors and providing them with access to managers that they might not be able to discover or evaluate on their own. It serves as a ‘one stop’ research, access, selection, portfolio construction and administration solution for investors.
A derivative, an obligation to make or take delivery of a specified quantity and quality of an underlying asset at a particular time in the future and at a price agreed when the contract was executed.
An abbreviation for ‘foreign exchange’.
Group of Three. The three largest western industrialised economies – the USA, Germany and Japan.
Group of Seven. The seven leading industrial nations outside the communist block – USA, Japan, Germany, France, UK, Italy and Canada.
Gross Domestic Product. A measurement in dollar terms of aggregate goods and services produced within a particular economy over a year excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of the particular economy.
Gross National Product. The GDP with the addition of interests, profit and dividends received from abroad. The GNP better reflects the welfare of the population in monetary terms, although it is not as accurate as a guide to the productive performance of the economy as the GDP.
A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by the government.
Gross IRR (also see IRR)
The internal rate of return inclusive of management expenses and fees. It is the annual percentage pre-tax return from an investment (or fund’s) cash outflows (including the cost of investment and costs of formation and management) and cash inflows (including sale proceeds from investments over a period of time (adjusting for the fact that money received later is worth less than money received now).
These investments generally include New Zealand and international shares, direct resources and property investments. Such assets are expected to experience capital growth and a degree of risk is involved. See also interest bearing investments.
Hedge funds utilise a variety of financial instruments to reduce risk, enhance returns and minimise the correlation with equity and bond markets. Hedge fund strategies vary greatly but most aim to reduce volatility and risk while attempting to preserve capita and deliver positive returns under all market conditions.
Taking steps to protect against, or at least reduce, a risk; a form of insurance. The term is common in futures and foreign exchange markets where traders use facilities available to protect themselves against future price or exchange rate variations.
The expected rate of return on a potential investment that an investment manager demands before committing any money. It is an arrangement that caps the downside risk for investors.
Term used to describe a complex security consisting of virtually any combination of two or more risk management building blocks bond or note, swap, forward or future, or option. A hybrid listed on a stock exchange is generally one that pays a fixed return similar to a bond while containing the option of being converted into shares in the issuing company.
A security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Illiquid assets may not be able to be sold quickly because of a lack of ready and willing investors or buyers.
A mechanism that a company can use to pass on credits for tax it has paid on its profits, to its shareholders when it pays them dividends. Imputation credits offset the amount of tax that shareholders would otherwise be liable to pay on those dividends, so they don't have to pay ‘double tax’.
Funds which seek to replicate a market index.
A low-risk investment management strategy in which the investor trades according to the performance of a market as a whole, rather than particular stocks or assets.
Superannuation resulting from an award or productivity agreement, or a superannuation scheme which covers an entire industry rather than one employer or company.
An increase in the volume of money and credit relative to available goods and services resulting in a continuing rise in the general price level.
Inflation indexed securities
Those securities where either part of all of the return is adjusted by an indexation factor reflecting changes in a price or wage series at the economy-wide level. The most common index used is the CPI.
Inflation linked bonds
Wholesale debt instrument (also colloquially known as ‘linkers’) where the principal is indexed to inflation. The goals is to ensure purchasing power by directly linking returns to inflation for the bond’s entire term. Linkers therefore contain two forms of payment: the real interest that is fixed at the beginning of the term, and compensation for the loss of purchasing power.
A term use to define projects or businesses that support the community. These include transport links (eg toll roads, railways, bridges), transport nodes (eg airports, shipping ports, bus terminals), essential service delivery (eg electricity, gas, water, telecommunications) and community amenities (eg hospitals, housing, education, prisons).
Initial public offering (IPO)
The first fundraising from the general public. It generally results in a listing on a stock exchange.
Interest bearing investments
These investments generally include New Zealand, international and short dated (or ‘cash’) fixed interest investments.
Internal rate of return (IRR)
The return from an investment, calculated to show the rate at which the present value of future cashflows from an investment is equal to the cost of the investment. Effectively it is the compound rate of return over the life of the investment and combines capital gains with income earned.
Debt securities that have a credit rating high enough for them to be purchased by most institutional investors. Debts rated by Standard & Poor’s at BBB and above and by Moody’s to Baa3 are considered to be investment grade securities that provide adequate financial protection to meet their obligations.
Investment linked fund
Funds directly link the value of the plan’s investments in the fund to the market value of the underlying assets.
High yield or non-investment grade bonds. Junk bonds are typically rated 'BB' or lower by Standard & Poor's and 'Ba' or lower by Moody's. They offer much higher yields than bonds with higher credit ratings because of their higher default risk.
A slang term for the New Zealand dollar (NZD).
A voluntary, work-based savings initiative to help New Zealanders with their long-term saving for retirement.
Leveraged buy out – see buy outs
Where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. Shareholders are legally responsible for the debts of a company only to the extent of the nominal value of their shares.
LLC (limited liability company)
A limited liability company is an alternative structure to a limited partnership (the structure most commonly used by private equity funds). It is often described as a hybrid between a corporation and a partnership because it offers limited liability (like a corporation) and single taxation on income (like a partnership).
Limited partnership (LP)
Most private equity firms structure their funds as limited partnerships. Investors represent the limited partners and private equity managers the general partners.
A company that is publicly owned and listed on a recognised exchange.
Debt traded on an active exchange. Listed debt can include corporate bonds and hybrids.
The ease with which any investment can be converted into cash.
This is the additional return for investing in a security that cannot easily be turned into cash.
Liquidity support vehicle
Mechanism that allows investors in illiquid assets to quickly convert their holdings into cash if they wish.
Constitutes shares in property companies or units in property trusts listed on the NZ Stock Exchange. Examples are Goodman Property Trust and Property for Industry Limited.
Long term investment
An investment which generally matures in more than five years.
Usually in reference to economics. The study of economic aggregates and their relationships to, for example, money, employment, interest rates, government spending, investment and consumption.
Arrangement which usually involves the pooling of the contributions of a plan in a particular fund. This is managed by an external manager and management charges, insurance premiums and benefits are paid. Income earned is credited to the fund.
Management buy out (MBO)
See buy outs.
Management buy in (MBI)
See buy ins.
A superannuation vehicle which enables a number of companies or individuals to combine their superannuation business under a common trust deed.
The date at which a fixed interest security matures.
Medium term investment
An investment which generally matures between two and five years.
Member tax credits
The name given to the annual contribution the Government makes towards a KiwiSaver account each year. The Government pays 50 cents for every dollar of member contribution annually up to a maximum payment of $521.43.
A form of finance that combines debt and equity components to provide flexibility to the investor and the company. Mezzanine investing is riskier than traditional senior debt since the debt portion is in the form of subordinated debt (the level of financing senior to equity but below senior debt). If a company goes into liquidation subordinated debt financiers will rank below senior debt financiers in the credit chain.
MSCI Accumulation Index ($NZ)
The Morgan Stanley Capital International Index in New Zealand dollars. It measures the way international shares values have changed ($NZ) and includes reinvestment of dividends. This index is a market proxy for international share portfolios.
Net asset value (NAV)
The value of a fund’s holdings, which may be calculated using a variety of valuation rules.
Net IRR (also see IRR)
The internal rate of return net of management expenses and fees.
Net present value (NPV)
A project’s net contribution to wealth. It is the present value minus the initial investment. It computes the expected value of one or more future cash flows and discounts them at a rate that reflects the cost of capital.
Net tangible asset backing (NTA)
Refers to the net physical assets owned by shareholders of a company at balance date, or a company’s net worth. It expresses the asset value per share.
Nominal interest rate
The interest rate expressed in money terms.
The face value of a bond.
Type of superannuation in which the member does not personally contribute.
The New Zealand Exchange (NZX) is the only registered securities exchange in New Zealand, and is also an authorised futures exchange.
Official Cash Rate (OCR)
The interest rate paid by banks who borrow money from the central bank through the overnight money market in New Zealand and Australia. Since banks frequently borrow money from the central bank to maintain regulated cash reserves, the central bank can adjust interest rates in the national economy by modifying the official cash rate.
Organisation for Economic Cooperation and Development. Formed in 1961 to promote cooperation among industrialised member countries on economic and social policies. The 25 members are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, UK and USA.
A type of derivative. It is a contract giving the holder the right but not the obligation to buy or sell an underlying asset at a specified price during a given period of time.
An investing strategy that tracks a market-weighted index or portfolio, with the aim of maximising returns over the long run by keeping buying and selling to a minimum to minimize investing fees.
Stated value or face value.
Time taken for a project to recover its initial investment.
Dividend as a proportion of earnings per share.
P/E (price-earnings) ratio
The ratio for valuing a company that measures its current share price relative to its per-share earnings.
The list of holdings in securities owned by an investor or institution.
Portfolio Investment Entity (PIE)
A type of entity (such as a managed fund) that invests the contributions from investors in different types of investments. It enables investors to pay tax on their investment income at their own tax rate, with a maximum rate of 28%.
A share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends.
Prescribed Investor Rate (PIR)
Rate at which an investor pays tax on their share of taxable investment income from a portfolio investment entity (PIE) investment.
The face value of a bond.
Sometimes referred to as alternative assets or loosely as venture capital. Includes the different forms of financing that can be provided over the various business cycles of a private company (ie unlisted company). The finance is provided by one or more private investors to help develop, resurrect or grow a business. Private equity financing can be broken down into the follow stages of a company’s development. These include seed capital, start-ups, venture capital (early stage), expansion capital, buyouts (management buy outs and management buy ins) and restructuring or turnaround investment.
The sale of securities not registered with a recognised exchange to institutional investors or wealthy individuals. These transactions are frequently facilitated by an investment bank.
Involves a private enterprise or syndicate purchasing a government asset or service.
Product disclosure statement (PDS)
A document or group of documents that contains information about a financial product including any significant benefits and risks, the cost of the financial product and the fees and charges that the financial product issuer may receive.
Refers to direct property investment, which covers a wide range of real assets including office (commercial), retail (shopping centres), industrial, hotel and leisure as well as residential properties.
Public to private
A transaction where an under-analysed, ‘ignored’ publicly listed company is de-listed and managed as a private company.
A valuation parameter associated with the purchase price of a specific investment. It is analogous to the P/E ratio using in public listed companies.
The right, but not the obligation, to buy a financial instrument or a commodity within a specified period.
A Qualifying Recognised Overseas Pensions Scheme (QROPS) is a pension scheme set up outside the UK that meets certain requirements set by Her Majesty’s Revenue and Customs (HMRC). A QROPS can receive transfers of UK pension benefits without incurring an unauthorised payment and scheme sanction charge.
A specialist usually working in portfolio management or bond research who develops systems that map past movements in financial markets with a view to predicting future equity, commodity and currency values.
Investment surveys rank investment managers according to the investment performance of their products. Managers in the top quarter of those participating in the survey are said to be ‘top quartile performers’. Similarly, an investment manager’s performance may fall in the second, third or fourth quartile, or be simply ‘above average’ (quarters one and two combined).
Real Estate Investment Trust (REIT)
A closed-end investment company that owns assets related to real estate such as buildings, land and real estate securities. REITs sell on the major stock market exchanges just like common stock.Real return
The rate of return on an investment in excess of inflation. For example, if the rate of return is 10% but the inflation rate is 3% the real return is 7% (10% minus 3%).
The restructuring of a company’s balance sheet by either increasing or decreasing the amount of corporate debt. The aim is to alter the capital structure of a company in order to improve its profitability. This strategy is considered to be a form of financial engineering.
Resident Withholding Tax (RWT)
The tax deducted on interest paid to New Zealanders on their deposit accounts.
Any physical item produced for trade purposes. New Zealand’s resources include coal, gold, aluminium and oil.
Responsible investment is a process that takes into account environmental, social, governance (ESG) and ethical issues into the investment process of research, analysis, selection and monitoring of investments.
A common measurement used in the private equity market is the amount realised for the investment divided by the original cost of the investment, otherwise known as realisation ratio or return multiple. The measurement does not take into consideration the time value of money.
In investment terms risk is a measure of volatility. Volatility is a measure of the variability of returns and is the standard deviation of investment returns over a specific period of time. The higher the standard deviation, the higher the level of risk associated with that investment.
The interest rate on an investment expressed as a percentage of the capital invested, thus showing the actual cashflow of the amount paid for the investment.
S&P/NZX 50 Index
Index designed to measure the performance of the 50 largest, eligible stocks listed on the Main Board (NZSX) of the NZX by float-adjusted market capitalization.
Debt which, in the event of default, has first claim on specified assets.
Written undertakings securing repayment of money. They are typically negotiable instruments such as bonds, bills of exchange, promissory notes or share certificates which establish ownership and payment rights between parties.
Substituting tradeable securities for privately negotiated instruments.
See start-up capital.
Debt which, in the event of bankruptcy, must be repaid before subordinated debt receives any payment.
Also known as equities. A person who buys a portion of a company’s capital becomes a shareholder in that company’s assets and as such receives a share of the company’s profits in the form of an annual dividend. There are different types of shares, for example ordinary, preference, cumulative preference and participating preference shares.
Short term investment
An investment which generally matures in less than two years.
Socially Responsible Investment (SRI)
An innovative form of investing because it focuses on investing in companies that will form part of a socially and environmentally sustainable world. SRI aims to achieve more than financial returns. Its non-financial aims include issues such as attempting to boost working conditions and helping the environment.
Where investment of the monies of a plan are split between two or more investment managers.
Created when two or more related securities are contractually bound together so that they cannot be sold separately.
Financing provided to companies which have not yet fully established commercial operations and may also involve continued research and product development. Essentially it is money provided to companies to develop a concept.
Strategic asset allocation (SAA)
Strategic asset allocation is a portfolio strategy that involves setting target allocations for various asset classes, then periodically rebalancing the portfolio to maintain these original allocations.
A loan which ranks behind other debts if a company is wound up. For this reason subordinated loans are more risky that debt classed as senior or insubordinated debt. Subordinated debt usually commands a higher interest rate than higher-ranked debt.
A pension or payment to a person retiring from full-time work on reaching a legislated age. The term also refers to the accumulating contributions by employers and employees to a superannuation fund.
Commonly refers to tax-free investment trusts open only to trustees of superannuation funds and not private investors.
On debt markets, when one party pays a fixed interest rate to another in return for a floating rate.
The fixed interest rates traders will pay to receive a floating money-market rate. The gap between those rates and government bond yields are known as swap spreads and gauge risk appetite.
A visual representation showing the fixed interest rates at which the bonds of the best-rated companies can be swapped for floating money-market rates.
The minimum and maximum weighting allowed within each asset sector. These ranges vary accordingly to the type of diversified option and are changed infrequently.
A collection of investors will pool their financial resources to simultaneously purchase securities from a corporation.
The expected value of an asset at the end of an investment period. If the investment is not publicly traded, then the terminal value is subject to the valuation and appraisal procedures of the valuer.
An arrangement whereby an asset is held by a person or persons (the trustees) for the benefit of some other person or persons (the beneficiaries).
The formal legal document which sets out the rules governing how a fund operates.
An individual or company with the duty to ensure that the rules of the trust deed are adhered to. Trustees are normally responsible for the running of superannuation plans and are bound by the trust deed, the relevant trust law and the FMC Act.
Decisions which, under the trust deed and/or rules for a plan, are specified to be exercisable in any manner, solely at the discretion of the trustees, eg death payments.
A firm which buys an issue of securities from a company and resells it to investors.
Unit linked investment
See investment linked fund.
A measurement that reflects the value of a fund at a point in time. Prices are either allocation or issue (buy in at) or release or redemption (sell at). The total investment of a unit holder can be measured by the number of units held multiplied by the unit price.
A form of collective investment constituted under a trust deed.
The measure of performance against an index, competitor or any other benchmark.
Underweight is less than the benchmark holding in an asset class; overweight is greater than the benchmark holding.
A company that is privately owned and not listed on the stock exchange. Unlike a listed company that is publicly owned and listed on a recognised exchange.
Debt that is not traded in an active market such as the stock or bond market. Typically the term unlisted debt market refers to the private structured debt market. This type of debt implies complex legal arrangements between share holders, borrowers and lenders.
The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued.
The amount of vested benefit is the minimum sum which must be paid to a member of a superannuation fund when the member becomes entitled to a benefit on withdrawal (eg on resignation).
A measure of the variability of returns. It is often taken as a proxy for investment risk.
A term used interchangeably with private equity. AMP Capital defines venture capital as finance provided by one or more private investors to help the development of a relatively young business.
Percentage or proportion of the portfolio invested in each asset class.
AMP Capital's range of wholesale trusts are pre-tax pooled investment vehicles that allow individuals to invest collectively, benefiting from the expertise of a professional investment manager and better diversification than may be available to the them as an individual investor. Income distributions to investors are normally before tax and so where investors have a marginal tax rate lower than the company tax rate, the investor may also benefit from paying a lower rate of tax.
Tax levied on dividends paid abroad.
A decrease in the market value of an investment established by a valuation.
A symbol used to signify that a security is trading ex-dividend.
A measure of return on an investment expressed as a percentage (calculated by dividing the income from an asset by its current capital value).
A curve on a graph in which the yield of fixed-interest securities is plotted against the length of time they have to run to maturity.