Share – a security issued by a company (issuer) with a purpose to acquire extra funds for further development of its operations or financing new projects. For shareholders, it represents a proof of ownership interest in the company’s assets or equity and that they are co-owners of the company who are entitled to dividends and other type of income distributed by the company.

Bond or long-term debt security (investment for more than 1 year) – bonds are issued by the government, municipal or corporate entity. A bondholder receives a pre-determined income for such loan.

Promissory note – a short-term investment (up to 12 months) instrument sold by the government, municipal or corporate entity at a discounted rate (below par value), whereas at the maturity the investor receives full par value.

Debt security – a financial instrument that represents the issuer’s liabilities towards the security holder and guarantees periodical income for the security holder pursuant to the pre-determined rate, as well as gives the right to receive the par value of the security after a certain period of time.

To issue – to issue securities.

Dividends – the net profit share of a joint-stock company that is paid to the shareholder.

Investment fund – consolidation of investors’ funds in investment financial instruments with a purpose to make profits on the investment

Yield – return on investment over a certain period of time. Yield sources may be dividends, return on equity and capital increase. The annual yield rate is measured against the initial investment amount and is calculated as a geometric mean rather than simple arithmetic mean amount.  

Weighted average price – the sum of all transactions completed in one trade session divided by the number of securities traded as part of these transactions.

Risk – uncertainty of feasibility of some future event.

Risk diversification – placement of investments among several securities or other financial instruments so that in a longer term price fluctuations of certain securities would not materially affect the entire investment.

Security – a financial instrument representing the person's or entity’s rights or liabilities towards another person or entity.

Volatility – a variable showing the changes in the price of a financial instrument and the risk level of using such financial instrument in the specific period of time.

Alpha – a measurement of the risk level assumed by the fund in relation to the market. Alpha represents surplus income that the fund has earned comparing to a benchmark index following the risk adjustment. The higher the Alpha is, the higher the yield that the fund has managed to generate in respect of the assumed risk. The minimum Alpha value to qualify as good is 0.  

Beta – a measure that shows sensitivity of a financial instrument to changes in the financial markets and the ratio of the risk assumed by the fund compared to the benchmark index. Beta above 1 means additional risk. It means that in a growing market the fund value may potentially increase more than the benchmark index, whereas during market recession it may as well fall down below the benchmark index.

Sharpe ratio – an index that shows whether investment in a volatile fund has paid off comparing to risk-free investments after risk adjustment. The greater the value of the Sharpe ratio, the better the yield of the fund compared to risk-free investments. If the Sharpe ratio is negative, then in the selected period of time, considering the fund’s risk, risk-free investments have generated better yield.

Tracking error – the difference between the fund’s yield and the benchmark index yield. The bigger the tracking error, the more the fund placement differs from the benchmark structure. It means that the fund is more independent and is managed more actively. If the tracking error is below 1%, the fund placement is very closely related to the benchmark index structure.

Information ratio – an index that shows the excess returns that the fund manager has generated over the benchmark index considering the assumed risk. A positive information ratio suggests that the risk assumed by the manager has paid off.

Inflation – a macroeconomic measurement that shows the overall growth of the price level and the respective decrease of purchasing power over the course of time. Inflation is one of the biggest risks that may materially affect investments and their future value. It is very important to follow the investment yield so that it always stays above the inflation level in a long term.

Liquidity – refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Nominal value – the price of a share, bond, or stock when it was issued, rather than its current market value.

Market capitalization – total market value of a company's outstanding shares. Commonly referred to as "market cap," it is calculated by multiplying the total number of a company's outstanding shares by the current market price of one share.

Price-Earnings (P/E) ratio – ratio that reflects investors' assessments of those future earnings. You determine the share price of the company's stock and divide it by earnings per share to obtain the P/E ratio.

Interest rate (on a fixed income security) – interest that is determined upon issuance of the financial instrument, and expressed as a percentage of nominal value. It can be also referred to the term for each interest payment made to the bondholder.

Preferred share – stock type which provides a specific dividend that is paid before any dividends are paid to common stock holders. If the company enters bankruptcy, preferred stockholders are entitled to be paid from company assets before common stockholders. Most preference shares have a fixed dividend, while common stocks generally do not. Preferred stock shareholders also typically do not hold any voting rights, but common shareholders usually do.

Correlation – is any statistical relationship, whether causal or not, between two random variables or bivariate data (i.e. degree to which two variables move in relation to each other). In investments, the correlation can measure the movement of a stock with that of a benchmark, e.g. comparing stock position to how general market index moves.

Expense ratio (ER) – also sometimes known as the management expense ratio (MER), measures how much of a fund's assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund's operating expenses by the average dollar value of its assets under management (AUM). Operating expenses reduce the fund's assets, thereby reducing the return to investors.

Management fee – fee that is charged by mutual fund manager to cover asset management costs, such as the cost of hiring and retaining investment advisors who manage funds' investment portfolios and any other management fees not included in the other expenses category.

Ongoing costs – overall charges of the fund manager for asset management and all other expenses according to the fund prospectus. The fee is charged upon calculation of the fund unit value.

Current yield – investment's annual income (interest or dividends) divided by the current price of the security. This measure examines the current price of a bond, rather than looking at its face value. Current yield represents the return an investor would expect to earn, if the owner purchased the bond and held it for a year. However, current yield is not the actual return an investor receives if he holds a bond until maturity.

Yield to maturity (YTM) – a bond's coupon rate is the rate of interest it pays annually, while its yield is the rate of return it generates. A bond's coupon rate is expressed as a percentage of its par value. The par value is simply the face value of the bond or the value of the bond as stated by the issuing entity.

 

Luminor Investor