Glossary of terms

The following terms and definitions represent some of the more commonly used phrases and abbreviations in the financial services industry.



Active management (investment management style)
A style of investment management that seeks to attain returns above a set benchmark by constantly monitoring and, if necessary, changing asset allocation and security selection.

Account-based pension or annuity
A flexible retirement income stream provided through an investment account. An account-based pension is provided by a superannuation fund whereas an account-based annuity is issued by a life insurance company using superannuation money. With an account-based pension/annuity, the income payments are not guaranteed and the investment risk remains with the investor.

Allocated pension or annuity
A flexible retirement income stream provided though an investment account (see account-based pension or annuity).

Annual report
A yearly report or statement of a company's financial health. It generally includes a balance sheet and profit and loss statement. Trustees of funds must also issue annual reports.

An income stream paid to an individual by a life insurance company. An annuity is purchased by an initial lump sum (the purchase price) using either superannuation or non-superannuation money. Annuities can be either guaranteed for life or a particular number of years or non-guaranteed account-based annuities.

Application form
The form (usually attached to the back of an Investment Statement or PDS) that you must complete to invest in that fund, or use to instruct the manager to buy further units in the fund.

Authorised financial adviser
A person authorised by the New Zealand Financial Markets Authority to provide personalised financial adviser services to retail clients.

Asset allocation
The percentage of assets held in each asset class (shares, fixed interest, etc.) in an investment portfolio.

Asset class
A category of financial assets. The major asset classes are shares, property, fixed interest and cash, which in turn can be broken down further to include domestic or international shares, domestic or international fixed interest, direct or indirect property and so forth.

Everything that a person or company owns or has a right to, from which a benefit can be derived.

ASX 300 Index
The top 300 companies, by market capitalisation, listed on the Australian Securities Exchange. The index is commonly used as a benchmark for the performance of Australian shares overall.

ASX 300 Accumulation Index
An index of the top 300 companies, by market capitalisation, listed on the Australian Securities Exchange. This index takes into account share price movements and dividends. Many Australian share fund managers use this index as their benchmark.

Australian Securities Exchange (ASX)
The main Australian market place for trading equities (shares) and related securities.

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Bear market
A declining financial market. The opposite of a bull market.

A measure used for comparison of investment returns over a period of time.

Beneficial owner
The person (also called the investor) who has absolute rights to the asset(s) even though the legal title is held by another (such as a custodian).


  • An individual or company who, on the death of another individual, receives financial benefit.
  • A person entitled to enjoy the benefit of property or other rights the legal title of which are held by a trustee, for example a trustee holds legal title to the assets of the trust but the beneficiaries are the persons who are intended to benefit from those assets.

Blue chip
Stock/shares of leading, quality companies (usually highly valued) that are well known for their strong financial position and ability to make profits.

Similar to an IOU, bonds are generally a medium to long-term fixed interest debt security commonly issued by Commonwealth and State Governments and corporations to raise funds. They are issued by the borrower at a specified interest rate and repaid after a set period.

Bottom-up style
A funds management style which uses a method of analysing companies whereby an investor starts by looking at stock-specific fundamentals and then incorporates industry trends and macro-economic analysis. This style is the opposite of top down.

Refers to an agent who handles the orders for an investor, for example they can purchase and sell securities, commodities, insurance policies or other property. The provision of this service attracts a brokerage (see below).

A fee charged by a broker for the purchase or sale of a security. Also see commission.

Bull market
An advancing financial market. The opposite of a bear market.

Buy/sell spread
The difference between the entry and exit prices (fees) of a fund.

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The value of your investment, represented by total assets (what you own) less total liabilities (debts or monies owed). Also refers to the initial amount you invested (for example in a capital guaranteed fund).

Capital Gains Tax
A tax applied on the increase in the capital value of an investment that is payable when the investment is sold.

Capital growth
The increase in the market value of an asset.

Capital guaranteed fund
An investment fund designed for a conservative investor where a guarantee applies to the return of the sum originally invested.

Capital stable fund
A term used to describe investments that have a high fixed interest or cash component.

Investment in a currency such as New Zealand dollars or other “near cash” securities such as highly liquid, highly rated investments like bank deposits, bank bills and Government debt with less than one year before repayment.

Cash management trust
A pooled investment vehicle that invests in high-yielding money market investments, normally only available to professional investors.

A fee charged by a broker or financial adviser for the execution of a purchase or sale of a managed investment. Alternatively, it can be a fixed amount per transaction or a percentage of the total value of the transaction. Also referred to as brokerage and is normally deducted from the gross amount contributed to the investment product prior to investment.

The process of converting a pension or annuity into a lump sum.

Compound interest
Interest that is paid on accumulated interest, as well as on the capital invested, such as if you reinvest the interest you earn on an investment, you earn interest on your interest as well as the capital amount over time.

Consumer Price Index (CPI)
Measures the price of a basket of items typifying goods and services purchased by Australian households across eight capital cities. CPI allows comparisons of the relative cost of living over time and is used as a measure of inflation.

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Debt security
Borrowed funds that must be repaid by the entity issuing the debt security.

The spouse (including de-facto or same-sex partner), child of a member of a superannuation fund or any other person who is financially dependent on that or in an interdependent relationship with that individual .

A financial instrument that derives its value from the price of a physical security or an index.

An income payment made to unit trust investors. Under a trust deed, any income earned by the investments held in the trust may have to be distributed to the investors. The term may also be used to describe a return of capital.

The process of distributing funds across a number of asset classes to reduce the impact that volatility in one asset class, sector or market will have on the performance of your overall portfolio of assets.

Diversified fund
An investment fund that invests in a broad range of asset classes (for example fixed interest, shares and property). The fund manager can alter the composition of the funds in light of changing economic and investment conditions in order to achieve the best results.

The payout from a company of a portion of its earnings to its shareholders, in proportion to the number of shares the shareholder owns.

Dividend imputation
So that company earnings are not taxed twice, investors who receive dividend payments may also receive a tax or imputation credit for the tax already paid by the company.

Dividend reinvestment plan
A scheme that enables shareholders in a company to acquire shares instead of taking their dividends in cash.

Dollar-cost averaging
The practice of investing amounts of money at regular intervals, regardless of whether the securities markets are declining or rising.

Dow Jones Industrial Average
A price-weighted average of 30 blue-chip stocks (shares) that are generally leaders in their industry. The Dow Jones Average has been a widely used indicator of the US stock market since 1928.

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Entry fee
A fee payable by investors on entry to certain investment options.

This is a term for shares. It is also a general word used to describe shareholding or ownership in a company. It can also refer to the value of your capital invested in an asset.

Ex dividend
A share where the seller, not the buyer, is entitled to receive the dividend.

Exit fee
A fee payable by investors when withdrawing all monies from or closing certain investment options.

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Financial adviser
A person who advises individuals on suitable forms of investment for their assets, considering their tax position, liabilities, personal circumstances, etc. They may also be referred to as a financial planner. See also Authorised financial adviser.

Fiscal policy
The Government's policy relating to its receipts and expenditure. Its potency as an economic tool stems from the fact that by spending more or less than it receives, the Government can affect the overall level of demand in the economy.

Fixed interest
Interest paid at a predetermined and unchanging rate for a specified period of time on investments such as bonds.

In relation to companies, it refers to the decision to list on a stock exchange and offer shares to the public. For currencies, it is the decision to let market forces set the exchange rates.

FTSE 100 Index (Financial Times Stock Exchange 100 Index)
The main index of the London Stock Exchange (LSE). An index of the 100 largest companies, by capitalisation, traded on the LSE. Commonly referred to as the Footsie.

Fund manager
An organisation that invests or manages money on behalf of individuals or other organisations.

A contract that obligates the owner to buy or sell a certain quantity and quality of an underlying asset at a predetermined price at a future date.

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Describes the practice of borrowing to invest. Gearing is usually expressed as a ratio of the borrowed amount divided by the total amount invested.

Goods and services tax (GST)
Goods and services tax that is charged under the Goods and Services Tax 1985 in New Zealand.

Gross Domestic Product (GDP)
A commonly used measure of the total market value of goods and services produced by an economy.

Growth At a Reasonable Price (GARP) style
This is a funds management style where a growth manager tends to employ elements of value style investing in its investment decision-making.

Growth fund
A fund that has a higher proportion of assets in investments such as shares and property that are expected to deliver most of their returns through capital appreciation.

Growth style
This is a funds management style where a growth style manager seeks companies whose earnings are projected to be superior to the market average.

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Hang Seng Composite Index
The main index for the Hong Kong Stock Exchange.

An investment position taken to counteract the potential risk from another investment.

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The process through which a shareholder obtains a tax credit on the dividends received on Australian share investments that can be used to offset other taxable income. This credit serves as an individual rebate on any tax already paid on the dividends of an Australian company.

Imputation credit
Tax credits available to an investor who receives imputed dividends or distributions. These credits are available to offset the investor's tax liability. Should the tax liability be zero, then for certain investors the credits are refundable. They are referred to as franking credits in Australia.

A numerical measure of price movement in financial markets, such as the ASX 300 Index.

Index manager
This is a funds management style where an index manager endeavours to replicate or copy the performance (returns) of a specific market index, such as the NZX50, ASX 300 or S&P500 Index.

Industrial shares
Shares in companies that are involved in the production of goods and services as distinct from those involved with raw commodities.

An overall increase in the prices of goods and services in an economy.

Investment manager
An entity that specialises in the investment of money on behalf of investors.

Investment statement
A document that offers securities to the public. It is intended to provide current and potential investors with a readable summary of the main aspects of that investment.

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A voluntary, work-based savings initiative for New Zealand residents designed to help you save for your retirement.

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The ease with which an investment can be converted into cash with minimum loss.

Listed company
A company whose shares can be bought and sold on a securities exchange.

Lump sum
A single payment for a total amount due, as opposed to a series of periodic payments, for example you may be entitled to receive a lump sum benefit from a superannuation fund instead of as a pension or annuity.

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Managed fund
Any form of investment in which a number of investors place their money with a manager to invest on their behalf.

Master trust or master fund
Both names are used interchangeably for schemes that allow individual investors or smaller superannuation funds to channel money into one or more underlying funds. A master fund may include one or more legal entities that cover superannuation and non-superannuation investments.

Monetary policy
Economic policy, usually handled by the Reserve Bank, concerned with the management of money supply, interest rates and financial conditions.

Money market
A market for trading short-term securities.

Multi-manager style
This is a funds management style where the investment management is conducted by more than one fund manager. It can be used for diversified or single asset class funds.

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NASDAQ (National Association of Securities Dealers Automated Quotations)
A computerised system that provides brokers with the price of shares and securities traded on the New York Stock Exchange (NYSE) and over the counter. Unlike the NYSE, the NASDAQ has no physical trading floor.

Negative gearing
An investment strategy where related costs (for example interest payments on funds borrowed to buy an income-producing asset) exceed the income from the asset.

NIKKEI-225 Stock Average
The main Japanese stock market benchmark that measures the top-rated 225 companies listed on the first section of the Tokyo Stock Exchange.

The main New Zealand stock market benchmark that measures the top-rated 50 companies listed on the NZX Main Board.

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An investment contract that gives the owner the right but not the obligation to buy or sell an asset at a predetermined price within a stated period of time.

Ordinary shares
Securities or fully paid shares that represent an ownership interest in a company. They carry voting rights (for the shareowner) and entitle the shareholder to receive dividends if the company makes a profit and decides to pay dividends.

Taking a greater exposure to one investment market or security compared with a benchmark or neutral position. The opposite of underweight.

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Passive management
This is an investment management style that aims to achieve investment returns in line with those of a specified market or index. May also refer to a style of investment management that focuses on holding investments for an extended period rather than trading to maximise gains.

A regular, periodic payment to an individual, made by either the Government or a superannuation fund.

Pooled fund
A number of individuals place their funds into one investment product fund, that is then managed by an investment manager on behalf of all the investors.

The ability to transfer benefits from one investment or superannuation fund to another.

A collection of investments that are all owned by the same individual or organisation.

Portfolio investment entity (PIE)
A portfolio investment entity, which is an entity that has elected to pay tax on your behalf based on your elected tax rate (called a Prescribed Investor Rate, or PIR).

Prescribed Investor Rate (PIR)
The rate of tax that you will pay on your investment in a PIE, and depending on your recent income, is either 0%, 10.5%, 17.5% or 28%. You choose a PIR that is applicable to you.

The sale of Government-owned services which permits the public to gain direct ownership via an allocation of shares.

Product Disclosure Statement (PDS)
A document required by Australian law (and will soon be required under New Zealand law) that provides specific details about the financial product being offered.

A document required by New Zealand law that provides specific details about the financial product being offered.

Property trust
A unit trust that pools investors' funds into property investments.

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A statistical measure dividing a sample into four numerically equal groups. Thus top quartile in a funds management context means the top 25% of the fund managers in a particular category or asset class.

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A rise in the sharemarket or a particular share price after a period of falling prices.

A significant slowdown or minor contraction in the economy (as opposed to a depression which is a major contraction in economic output). A recession is sometimes defined as a period where a nation's Gross Domestic Product (GDP) declines over two consecutive quarters.

Regular savings plan
An agreement in which an investor pays a regular amount at a nominated frequency into an existing scheme (investment fund).

Resource shares
Shares in companies involved in commodity-related activities such as mining and energy.

Retirement income stream
An investment product that provides a regular income in retirement. A retirement income stream can be either a pension (paid from a superannuation fund) or an annuity (paid by life insurance company).

The amount of income or growth received from an investment or a transaction, usually expressed as a percentage of the amount invested.

The chance of incurring a loss from an investment.

Transfer of superannuation money from one complying superannuation fund to another. A rollover may also include the transfer of superannuation money from one account to another account within the same fund.

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Salary sacrifice
An arrangement whereby the employee agrees with his/her employer to forgo part of their salary in exchange for the employer providing an alternative benefit (such as a carpark, or a contribution to a superannuation scheme. The reduction in salary results in a reduction in the employee’s income tax liability.

A form of contract representing ownership in shares, fixed interest and derivatives.

Part-ownership in a company. Shares include certain rights (for example to participate in the appointment of directors, to receive dividends, to receive a share of the surplus assets in a company's dissolution). Different types of shares include ordinary shares, convertible notes and preference shares.

Generally this includes a legal spouse, de-facto spouse and same-sex partner.

A stock exchange member who is authorised to buy and sell shares on behalf of others.

Strategic asset allocation*
The composition of an asset mix within a portfolio, constructed with the objective of meeting the long-term liabilities of a fund, rather than being based on short-term views of relative performance of the various asset classes.

Superannuation (super)
A system where individuals set aside funds during their working life to fund retirement. This can also refer to the payment made by the New Zealand Government to retired people.

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Tactical asset allocation
An investment approach by which the allocation of a fund to different classes of asset is changed on a short-term basis to take advantage of perceived differences in their relative values.

Top down style
A funds management style using a method of analysing companies whereby an investor starts by looking at macro-economic factors and then incorporates industry trends and stock-specific factors. This style is the opposite of bottom up.

Trust deed
A document that sets out the rules for the establishment and operation of a fund.

The person or company that has the legal responsibility to ensure that the trust or superannuation fund is operated in accordance with the trust deed.

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Underlying investments or securities
In relation to managed investments, this normally means the investments selected by the investment manager. In the case of master trusts, underlying investments are the investments offered through menu options for an investor to select. The menu may include both listed and unlisted investments and investments only available through the master trust the investor has elected to use.

Taking on a smaller exposure to one investment market or security compared with a benchmark or neutral position. The opposite of overweight.

Unit trust
A pooled investment structure set up under a trust deed where investors buy units in a trust that is managed by the fund manager on behalf of the investors. The value of units is set either by the market (if a listed trust) or by the trustees (if unlisted), who adjust the price according to valuations.

Unit price
The price of a unit in a fund, which is calculated in accordance with the trust deed. The price is based on the value of the underlying investments of the fund at that time.

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Value style
A funds management style where a value investor seeks to invest in assets that are underpriced on the expectation prices will increase. With shares, the key ratio to judge whether stocks are underpriced or not is their relative price/earnings ratio.

The extent to which total returns from an investment fluctuate over time.

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Wrap account/service
A portfolio reporting and custodian service in which investors hold assets via a custodian arrangement and receive reports on all assets within the portfolio. Assets held may include direct investments such as shares, and managed investments including master funds, etc.

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The income earned from an investment expressed as a percentage.


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