Glossary

Absolute Return

Absolute Return Funds employ a range of investment strategies which aim to generate 'absolute' returns in both rising and falling markets.  Unlike traditional asset classes, these Funds do not buy and sell assets relative to a benchmark or index, so they tend to generate returns that are not related to returns from traditional markets, such as the Australian Sharemarket.

The focus of this asset class is on the performance and skills of the investment manager as a source of the Fund's returns, rather than on returns from the market.  Catholic Super's Managed Choice Options have an allocation to this asset class to further diversify the portfolios.

Asset Allocation
The apportionment of an investment portfolio among different asset classes (shares, fixed interest, property, cash etc).

Asset Class
A broadly defined category of financial assets, eg. Australian shares, overseas shares, property, fixed interest, cash etc).

Australian Shares

Represent partial ownership of companies listed on the Australian Stock Exchange.

Balanced Fund
An investment portfolio which diversifies its holdings over a range of asset classes which typically include shares, fixed interest, property and cash.

Benchmark

An index or other market measurement which is used to assess the risk and performance of a portfolio.

Bond
A debt security issued by entities such as corporations, Governments or their agencies (eg. statutory authorities). A bond holder is a creditor of the issuer and not a shareholder.

Capital Gain/Loss
The difference between the sale price of a capital asset and its cost.

Coupon
A certificate attached to a bond, representing an obligation to pay interest on the bond. Not to be confused with yield, which varies as interest rates move.

Defensive Assets

Income producing assets such as fixed interest and cash. Defensive assets are also referred to as Income Assets.

Diversification
The spreading of investment funds among classes of securities and localities in order to distribute and control risk. This is a fundamental law of investment, meaning simply “don’t put all your eggs in the one basket”.

Dividend
The amount of a company’s after-tax earnings which it pays to shareholders.

Excess Return

The return above the nominated benchmark return. It is calculated as the difference between the return achieved and the benchmark return.

Financial Market
A generic term for the markets in which financial securities are traded – eg. stock exchanges, futures exchanges, currency markets.

Fixed Interest
Any debt security which has a fixed flow of income. Fixed interest represents money loaned by the investor to various borrowers, usually in the form of interest or coupon bearing bonds.

Growth Assets

A general term for assets such as shares and property which provide investment returns (comprising both capital growth and income) which tend to increase over time in line with or in excess of the growth of the economy.

Investment Manager

An organisation that specialises in the investment of a portfolio of securities on behalf of individuals and/or organisations subject to the guidelines and directions of the investor.

Investor
A person whose principal purpose is to invest money prudently and productively over the longer term with the investment objectives being achievement of a reasonable return and capital appreciation to preserve purchasing power.

Overseas Shares

Are similar to Australian shares but represent a partial ownership in companies listed on foreign stock exchanges (eg. US, Japan, Europe etc).

Property

Represents the ownership or partial ownership of real property assets. Investment in property is typically undertaken through a unitised vehicle, where the investor buys units representing partial ownership of a diversified ‘package’ of properties. These unitised vehicles can be either unlisted (i.e. not listed on the stock exchange), in which case they are referred to as ‘direct’ property, or the vehicles themselves can be listed on the stock exchange, known as ‘listed’ property.

Risk

In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must promise higher expected returns if investors are to be attracted to them.

Share

A certificate of ownership; a contract between the issuing company and the owner which gives the latter an interest in the management of the corporation, the right to participate in profits and if the company is dissolved, a claim upon assets remaining when all debts have been paid.

Unit Trust

A pooled investment fund or collective investment, established under a trust deed, that continually offers new units and stands ready to redeem existing ones from the owners.

Volatility

The extent of fluctuation in share prices, exchange rates, interest rates etc. The higher the volatility, the less certain an investor is of return and hence, volatility is one measure of risk.

Weighting
The relative proportion of each of a group of securities or asset classes within a single investment portfolio.

Yield

1. The return on an investment expressed as a percentage.
2. The profit or income that an investment or property will return.
3. The money derived from any given business venture, usually expressed as an annual percentage of the initial investment.