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Glossary

Here you’ll find definitions of terms used on the AIC site. Enter the term you want to search for in the box, or click on the letter it begins with.

Most frequently searched terms can be found below

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A closed-ended investment company has a fixed number of shares in issue at any one time. These are traded backwards and forwards on the stock market, which has no impact on the underlying portfolio.

As well as allowing managers to take a longer-term view, this enables investment companies to invest in specialist illiquid asset classes such as private equity, venture capital and property.

See also open-ended fund

The difference between the prices at which you can buy and sell shares and securities. It’s also known as the ‘spread’ or ‘bid-offer spread’.

When you buy and sell shares in investment companies, you may see two prices quoted:

  • the higher price (the 'offer' price) is the price that you can buy the shares for.
  • the lower price (the ‘bid’ price) is the price you can sell the shares for.

The difference between the two is the dealing spread.

If you buy shares, you’ll need the bid price of the shares to rise by more than the dealing spread to make a profit. The dealing spread varies between investment companies. For example, large generalist investment companies may have smaller spreads than more specialist smaller investment companies.

See also share price.

The annual dividends expressed as a percentage of the current share price.

If a company has paid an interim dividend of 2p, and a final dividend of 3p, and the share price is currently £1.25p, the dividend yield would be 4% (2p + 3p = 5p / 125p = 4%).

A dividend yield can give you an indication of the level of income you might get from an investment company share. However, depending on the performance of the company, future dividends may be higher or lower than indicated by the current dividend yield.

The dividend yields published by the AIC don’t include any special dividends paid.
 

The amount, expressed as a percentage, by which the share price is less than the net asset value per share.

Learn more about discounts and premiums

See premium.

Ways in which investment companies can magnify income and capital returns, but which can also magnify losses.

At its simplest, gearing means borrowing money to buy more assets in the hope the company makes enough profit to pay back the debt and interest and leave something extra for shareholders.

However, if the investment portfolio doesn’t perform well, gearing can increase losses. The more an investment company gears, the higher the risk.

Investment companies can usually borrow at lower rates of interest than you’d get as an individual. They also have flexible ways to borrow – for example they might get an ordinary bank loan or, for split capital investment companies, issue different classes of share.

Not all investment companies use gearing, and most use relatively low levels of gearing.

The process of ending a company’s life. It normally involves selling off the company’s assets, paying off any creditors, and then returning anything left over to shareholders.

 

See wind up date.

A measure showing how the net asset value (NAV) per share has performed over a period of time, taking into account both capital returns and dividends paid to shareholders.

The AIC shows NAV total return as a percentage change from the start of the period. It assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend.

NAV total return shows performance which isn’t affected by movements in discounts and premiums. It also takes into account the fact that different investment companies pay out different levels of dividends.

See net asset value, NAV capital return performance, share price total return performance and total return performance.

A very common measure of the underlying value of a share in an investment company.

In basic terms, the net asset value (NAV) is the value of the investment company’s assets, less any liabilities it has. The NAV per share is the NAV divided by the number of shares in issue. This will very often be different to the share price. The difference is known as the discount or premium.

Learn more about discounts and premiums

A measure, expressed as a percentage of NAV, of the regular, recurring costs of running an investment company.

A fee sometimes paid on top of a management fee if an investment company outperforms its benchmark or meets other conditions.

Buying shares on a regular basis to smooth out the ups and downs in the share price.

Pound-cost averaging can be a useful technique if you’re worried the stock market might fall in the near future. You invest over time instead of all in one go, so you end up buying more shares when the price is low and fewer when the price is high. Over time, this can help to smooth out some of the ups and downs in the share price.

Investing in shares of private companies, as opposed to companies whose shares are traded on stock markets.

A measure showing how the share price has performed over a period of time, taking into account both capital returns and dividends paid to shareholders.

The AIC shows share price total return as a percentage change from the start of the period. It assumes that dividends paid to shareholders are reinvested in the shares at the time the shares are quoted ex dividend.

Share price total return shows performance which is affected by movements in discounts and premiums. It also takes into account the fact that different investment companies pay out different levels of dividends.

See share price, share price capital return performance, NAV price total return performance and total return performance.