Financial glossary

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AAA

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has an exceptional degree of creditworthiness and can easily meet its financial commitments

Absolute Return Fund

An actively managed fund that aims to generate positive returns in both up markets and down markets

Alpha

Alpha is an indicator used to measure the value added by an active portfolio manager relative to a passive exposure to a benchmark. A positive alpha expresses an outperformance whereas a negative alpha indicates an underperformance. A simple way to calculate alpha is to compare the excess return of a fund with the benchmark index’s return. The difference is the fund’s alpha.

Alternative Investment

Investments considered outside of the traditional asset classes of stocks, bonds and cash, e.g. real estate, commodities, options and financial derivatives. Often used by hedge funds

Arbitrage

Arbitrage usually refers to a financial strategy designed to profit from a discrepancy in the market. The arbitrage opportunity occurs when short term pricing inefficiencies are detected. A typical arbitrage would be to simultaneously buy and sell similar financial instruments in different markets to capture an abnormal price difference.

Asset allocation 

is an investment strategy that seeks to balance the risk and rewards from investing. It entails adjusting the amount (or percentage) of money that is invested in different asset classes such as stocks, bonds, cash. This adjustment will depend on an investor’s tolerance for risk, their particular goals and investment time frame.

Asset Backed Security (ABS)

Asset Backed Securities (ABS) are financial securities backed by specific assets. The collateral typically used to back ABS include: auto loans, credit card receivables, housing loans or student loans. ABS differ from traditional secured debt as they are issued by special purpose vehicles. This separates the underlying assets from the original institution which issued the loans, providing further protection.

Asset Backed Security (ABS)

Asset Backed Securities (ABS) are financial securities backed by specific assets. The collateral typically used to back ABS include: auto loans, credit card receivables, housing loans or student loans. ABS differ from traditional secured debt as they are issued by special purpose vehicles. This separates the underlying assets from the original institution which issued the loans, providing further protection.