Define A Term

Recession:

Definitions vary across the world. In SA it is taken to mean two consecutive quarters of negative growth; in global terms it is taken to mean growth below 3% (annual average) as this is when there is no growth in GDP per capita. Adenaan Hardien, Cadiz Asset Management

GDP:

Gross domestic product – the monetary value of all goods and services produced in an economy over a specific time period. Oxford dictionary of finance and banking

CPI:

Consumer price index that measures inflation. The Oxford Dictionary of Finance and Banking defines inflation as a general rise in prices in the economy and a consequent fall in the purchasing value of money. CPI is measured in SA monthly and based on a basket of goods and services for the general population.

Risk:

Risk could broadly be defined as the possibility that an outcome is different to the one expected. According to the Oxford Dictionary of Finance and Banking risk is a possibility of financial that is inseparable from the opportunity for financial gain. Many investors view risk as the possibility that there will be a capital loss.

Defensive share:

The share of a company that supplies goods and services that are used in general day to day by consumers irrespective of financial and economic conditions – for example shares of a food store. This share is expected to have good performance irrespective of market and economic conditions eg in both times of recession and boom.

Asset Allocation:

The process of splitting an investment among various asset classes – for example out of R1000 investing R600 in equities, R300 in property investments and R100 in bonds.

Active management:

In an investment portfolio active management will occur where a fund manager will select investments that would be expected to beat a benchmark.

Passive management:

Where investments in a portfolio are selected based on criteria such as index components.

Alpha and Beta:

Two terms commonly used to mean better than market and market returns. Beta would be the return of the market and alpha would be return over the market return that an investor or fund manager achieves.

Benchmark:

A standard used to measure performance – for example a common SA benchmark is the FTSE/JSE All Share Index. It is useful to remember that while this indicates how a portfolio has performed compared to the market it is not a measure of how it has performed to the investor’s expectations.

Liquidity:

Most commonly used to refer to how quickly a portfolio can be turned into cash – or is in cash. So a portfolio with a high percentage of money market assets would be more liquid than a hedge fund portfolio that can take more time to turn into cash.

Compliance:

Rules and regulations that certain investments must apply to – used to protect investors’ interest and ensure no unscrupulous investment management occurs.

Disclosure:

The process of informing prospective buyers and sellers of all the relevant details and interests in any transaction – including financial interests and incentives, situations where the investment may differ.

BRIC:

Commonly used acronym for Brazil, Russia, India and China – the leading emerging economies.

Frontier markets:

More frequently used term in the last few years that most often refers to emerging markets other than the BRICs that are expected to show growth. (the potential future BRICS)

Volatility:

Fluctuations in price and market moves. A highly volatile market may significantly up and down in a short period of time.

REIT:

Real estate investment trust

Real return:

Return after inflation has been taken into account – but not always before tax.

Economic cycle:

The movement of an economy through upturn, prosperity, downturn and recession.

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Define A Term

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