Investment terms

Absolute return - A return provided by a share or portfolio which is not measured relative to another share or benchmark index.

Accelerated Depreciation Scheme - A method of depreciation used for accounting or income tax purposes which allows greater deductions in the earlier years of the life of an asset.

Active Investors - Investors who purchase shares in companies and monitor the performance of the companies in order to provide returns, as opposed to passive investors who buy shares based on benchmark weighting.

Active share - A measure of the percentage difference between the portfolio holdings and benchmark constituents. A higher percentage reflects a higher divergence from the benchmark. 

Addressable market - Addressable market (or available market) is the market demand for a product or service.

Antitrust laws - Regulations that encourage market competition by limiting the market power of any particular firm. 

Balance of payments - Summarises the economic transactions of an economy with the rest of the world.

Benchmark - A standard that is used to measure the change in an asset’s value over time. In investing, benchmarks are used as a reference point for the performance of a managed fund.

Benefit Corporation (B Corp) - A Benefit Corporation is a term used in the US for a form of legal corporate incorporation, which involves a high degree of transparency around sustainability issues, and has a material positive impact on society and the environment. This includes a binding legal commitment on directors to consider the interests of all stakeholders, not just shareholders.

Book value - The value of an asset according to its stated value on the balance sheet of a company.

Bottom of the pyramid - The poorest group in a society.

Bottom-up - Analysis of a company focused principally on its management, franchise and financials, rather than the broader industry in which it operates, or macroeconomic factors, such as economic growth.

Bubble - Conditions in an asset market where valuations are extended to excessive levels.

Bull market - A market where price of assets are rising.

Capital expenditure (capex) - Expenditure applied by a company to acquire, upgrade, and maintain physical assets such as property, buildings, industrial plant, technology or equipment.

Capital - wealth in the form of money or other assets owned by a person or organisation or available for a purpose such as starting a company or investing.

Competitive advantage - the ways that a company can produce goods or deliver services better than its competitors.

Commodities -substance or product that can be traded, bought, or sold.

Carbon sequestration - stores carbon dioxide in solid and dissolved forms to prevent it from entering the Earth’s atmosphere.

CFPS CAGR (cash flow per share compound annual growth rate) - A measure of the rate of growth of a company’s cash flow.

Change multiplier effect - Intensive change caused by complex economic and political factors, such as population change, environmental problems etc.

Circular economy - An economic system aimed at eliminating waste and the continual use of resources.

CleanTech - CleanTech companies seek to increase performance, productivity and efficiency by minimising negative effects on the environment. 

Compound annual growth rate (CAGR) - A statistic that measures the compound annual return of metrics over a set period of time, assuming gains are reinvested (i.e. compounding effect).

Concession zone - A territorial area over which a company has been granted regulatory approval to provide a given service, generally for a limited period of time.

Currency peg - Fixed exchange rate mechanism, with the domestic currency usually fixed at a specific rate to the US dollar.

Cyclical - Sensitive to movements of the economy (expansion and contraction).

Dividend - A payment by a company to its shareholders.

Derivative - A tradable security whose value is derived from the actual or expected price of an underlying asset.

Depreciation - a reduction in the value of an asset over time, due in particular to wear and tear.

Developed markets or economies - Countries with relatively high levels of economic growth and security are considered to have developed economies.

Discounted Cash Flow (DCF) - A valuation method used to estimate the attractiveness of an investment opportunity. 

Discount rate - The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

EBITDA (earnings before interest, tax, depreciation and amortisation) - A measure of a company’s operating performance without having to factor in financing decisions, accounting decisions or tax environments. Amortisation, like depreciation, is the practice of reducing the value of an asset to reflect its falling value over time, but is usually applied to non-tangible assets like brands.

Emerging markets or economies - Emerging markets (or EME, for the emerging market economy) are economies of countries that are in the progress of becoming a developed country and typically are moving toward mixed or free markets. Emerging market economies often have lower per capita income than developed countries, and often have liquidity in equity markets, are instituting regulatory bodies and exchanges, and see rapid growth.

Environmental, social and governance (ESG) - This refers to a set of criteria by which a company is judged by investors. Environmental criteria consider how it performs on environmental issues. Social criteria consider how it manages relationships with employees, suppliers, customers and the communities in which it operates. Governance deals with a company’s management, executive pay, audits, internal controls and shareholder rights.

EPS (earnings per share) - The portion of a company’s profit allocated to each outstanding share of common stock.

ESG (Environmental, Social and Governance) - ESG criteria are a set of standards for a company’s operations. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

ETF (exchange traded fund) - The context in which we are using this term is to refer to a type of investment fund that is traded on a stock exchange and tracks a benchmark. 

Fabless - A tech company which designs microchips but contracts out their production, rather than owning its own factory. 

Free-float/ownerless company - A company not owned by a family group with a broad range of shareholders.

GDP (gross domestic product) - The monetary value of all the finished goods and services produced within a country’s borders in a specific time period. 

GDP per capita - The amount of GDP (gross domestic product) relative to a country’s population.

Generic drug - A medicine that contains the same active substance as an originally marketed brand medicine which is produced by a manufacturer other than the company that developed the original brand.

Global Financial Crisis - The financial crisis of 2007–2008, also known as the GFC, the Great Recession or simply the 2008 financial crisis. It is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s.

Headwinds - Conditions which slow company growth.

Information ratio - measures and compares the active return of an investment compared to the returns of a benchmark, relative to the volatility of those returns.

Long-term structural trends - Fundamental long-term changes in, for example, the economy or environment.

Market cap - The value of a company traded on the stock market determined by the total value of all its outstanding shares.

NGO - Non-governmental organisation.

OECD (Organisation for Economic Co-operation and Development) - An international organisation that works to build better policies to improve people’s lives. 

Paris Agreement - The Paris Agreement sets out a global framework to avoid dangerous climate change by limiting global warming to well below 2°C and pursuing efforts to limit it to 1.5°C. It also aims to strengthen countries’ ability to deal with the impacts of climate change and support them in their efforts. The Paris Agreement is the first-ever universal, legally-binding global climate change agreement, adopted at the Paris Climate Conference (COP21) in December 2015.

Picks and shovels - Investing in the underlying technology needed to produce a good or service, rather than the final output. The term refers back to the gold rush of the 19th century when those who made the best returns often sold ‘picks & shovels’ to gold prospectors, rather than prospecting for gold.

Price/earnings ratio (P/E) - The ratio of a company’s share price to its earnings per share.

Principles for Responsible Investment - A United Nations-supported international network of investors working together to implement its six aspirational principles. Its goal is to understand the implications of sustainability for investors and support signatories to facilitate incorporating these issues into their investment decision-making and ownership practices.

Proxy vote - Refers to a ballot cast by a single person or firm on behalf of a company’s shareholder who may not be able to attend a shareholder meeting.

Rainbow washing [in relation to the Sustainable Development Goals] - Making products appear more aligned and targeted to the colourful icons of the United Nations Sustainable Development Goals.

Renewables - A natural resource or source of energy that is not depleted by use, such as water, wind or solar power.

Resolutions - Propositions put before the directors or members of a company to vote on. 

Sustainable development - Economic and social development without using up the world’s natural resources. It aims for high human development with a sustainable environmental footprint.

Sustainable Development Goals (SDGs) - A collection of 17 global goals designed to be a ‘blueprint to achieve a better and more sustainable future for all.’ The SDGs were set in 2015 by the UN and intended to be achieved by 2030.

Sustainable finance - Taking account of environmental, social and governance (ESG) considerations when making investment decisions. 

Sustainable investment - Investing which takes account of sustainable development issues, such as environmental issues and corporate governance concerns. 

Sustainable sourcing - ensuring the company is managing its supply chains in a way that allows it to continue to procure the resources it needs to operate and in a way that doesn’t expose it to environmental and social risks like human rights abuses or pollution.

Tangible assets - Assets which have a physical form, like property, computer equipment or factories, as opposed to intangible assets, like brands and trademarks.

Tailwinds - Conditions favourable to a company’s growth.

Top-down - An investment philosophy focused on trends in the economy as a whole rather than a company level (bottom-up).

Total addressable markets - the total revenue opportunity available to a product or service.

Utility-scale solar photovoltaics - Solar power generation at a large scale.

Warrant - A financial derivative which moves in price more than the underlying security.