Glossary

An ETF (see "ETF" for definition) that uses the discretion of a fund manager to select securities rather than following a strict rules-based method. The aim of an actively managed strategy is generally to outperform a reference benchmark (see "benchmark" for definition) over the long term.

A measurement of the excess return of a fund in comparison to its benchmark (see "benchmark" for definition).

The requirement under SFDR to describe the  manner in which Sustainability Risks are integrated into investment decisions, or to provide an explanation of reasons why Sustainability Risks are deemed not to be relevant.

A fund that, in accordance with the criteria outlined in Article 8 of SFDR, promotes, among other characteristics, environmental or social characteristics, or a combination of those characteristics and provided that the companies that the Fund invests in follow good governance practices

A fund that, in accordance with the criteria outlined in Article 9 of SFDR has sustainable investment as its objective. 

The lowest price that a market participant is willing to sell a security, such as shares in an ETF (see "ETF" for definition). From an investor's perspective, this is the price they would need to pay to buy the shares.

A general classification to define a security, for example as equity, bond or commodity.

Additional Tier 1 (AT1) capital bonds are securities issued by banks that contribute to the total amount of capital required for regulatory purposes. They have a predefined trigger which means that they will automatically be converted into equity or cash to return capital back above the regulatory minimum if an issuer’s capital falls below that level.

"Assets under management" refers to the total value of the ETF (see "ETF" for definition) at a given valuation point.

Unit of measure expressed as one hundredth of one percentage point.

Characterises a market in which equity prices are falling and the economy is also in decline. (See "bull market" for the opposite condition.)

An index against which the ETF (see "ETF" for definition) is measured, in terms of relative performance, risk and other useful comparisons.

The highest price that a market participant is willing to pay for a security, such as shares in an ETF (see "ETF" for definition). From an investor's perspective, this is the price they would be willing to receive for selling their shares.

The bid-ask spread is the difference between the price at which someone will buy (bid) or sell (ask) a security, including shares in an ETF (see "ETF" for definition). The spread shown takes into account the highest bid price and lowest ask price among all participants.

Also known as the bid-ask spread, or simply "the spread" (see "bid-ask spread" for definition)

A type of security issued usually by a government, company or agency that pays a defined rate of interest (also known as a coupon) over a given time period, at the end of which the initial amount is repaid.

A person who arranges transactions between a buyer and a seller. A broker generally receives a commission when the deal is executed.

Characterises a market in which equity prices are rising and the economy is generally sound or expanding. (See "bear market" for the opposite condition.)

Fixed income securities issued by the German government.

A strategy that aims typically to improve the financial returns that an investor would expect from cash. A cash management portfolio would usually include non-cash items such as money market instruments.

Shares of mainland China-based companies that trade on the Shanghai Stock Exchange or Shenzhen Stock Exchange.

A basic good that is interchangeable with goods of the same type, with a sample from one producer being largely indistinguishable from another's. Commodities are generally split between those related to agriculture, livestock, energy and metals.

A specific category of fixed income securities that are designed to be converted into common equity or cash when certain conditions are met. AT1 capital bonds are examples (see "AT1" for more information).

Refers to an ETF (see "ETF" for definition) that may be considered a key component of an average investor's diversified portfolio.

A shortened term for corporate bonds, meaning fixed income securities issued by corporations.

Sometimes referred to as "default risk", this is the risk that the other party involved in a trade is unable to fulfil its contractual obligation. Counterparty risk is present when an ETF (see "ETF" for definition) uses derivative contracts or securities lending.

Refers to the quality of a company's credit, as determined and assigned by a recognised credit ratings agency.

Financial contracts made between two or more parties, in which the value is derived from the underlying asset on which the derivative is based. 

A country that, in investing terms, has a well-established economy and financial markets. Characteristics include sustained economic growth, high per capita income and foreign access to its capital markets.

Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income and commodities. The aim of diversification is to reduce the overall risk of the portfolio.

A measurement of a bond's (see "bond" for definition) sensitivity to changes in interest rates. Duration is expressed in years, and takes into account factors including how long before the bond matures, its yield and coupons.

Refers to a country with an economy that is in relatively early stages of development compared to more mature, established economies. Investments in emerging markets are generally considered to be riskier than those in developed markets (see "developed market" for definition).

Shares of ownership in a company.

A financial ratio indicating the relative proportion of equity used to finance a company's assets.

Environmental, Social and Governance factors, generally stated in terms of how they pertain to a company. These three key factors are often used in measuring the sustainability and societal impact of investment decisions.

Exchange traded commodities (ETCs) are listed debt instruments traded on a stock exchange and backed by a commodity. They are not funds or ETFs. 

An exchange traded fund (ETF) is a pooled investment vehicle with shares that can be bought and sold throughout the day on the stock exchange, in the same way that ordinary stocks and shares are traded. 

Exchange traded products (ETPs) are a broad category of investment vehicles that include ETFs and ETCs (see above for definitions).

The proportion of a fund invested in a particular security, sector or region, usually expressed as a percentage of the overall portfolio. Exposure may also refer simply to the market in which the fund is invested, for example a fund invested in US equities provides an investor with US equity exposure.

An investment approach that seeks to identify and invest in securities that display certain quantifiable characteristics. Common examples of factors include Value, Quality and Momentum (see "Value", "Quality" and "Momentum" for definition). A factor strategy may seek to target just one factor or combine multiple factors.

A broad asset class that includes bonds, notes and other securities that pay investors a regular income - either a fixed amount or one that is linked to some benchmark rate - until the security's maturity date. At maturity, the principal amount is repaid to the investors. Some fixed income securities do not have a maturity date, but pay income in perpetuity ("perpetual bonds").

A specific type of fixed income security in which the income payable to investors fluctuates in step with the market interest rates, or some other external measure.

Free float relates to the amount of a company's shares available for purchase by the public or institutional investors on the open market.

Fixed income (see "fixed income" for definition) securities issued by the UK government.

The intended result of reducing the portfolio's exposure to a specific risk, such as the risk of fluctuations between currency exchange rates ("currency hedging").

Fixed income (see "fixed income" for definition) securities that can generally be characterised as having relatively low credit ratings, higher risk of default and higher coupon payments to compensate investors for the increased risks, relative to bonds with better credit ratings.

Refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by a recognized credit rating agency. Companies with an investment grade credit rating are generally considered to be lower risk than those with sub investment grade ratings, also known as high yield issuers (see "high yield bond" for definition).

Initial public offering (IPO) is an event whereby shares in a privately held company are first listed on a stock exchange.

Key Information Documents (KIDs) are regulatory documents that provide investors with important information about the specific investment.

A stock that historically has demonstrated lower price volatility compared to the broader market.

A market maker is an individual or specialist trading firm that provides prices that they would be willing to buy (bid price) and sell (ask price) shares on a stock exchange. Market makers are often referred to as "liquidity providers" because of their ability and willingness to trade large quantities of shares throughout the day. 

An index construction methodology whereby the percentage that each security has within the index (its "weighting") is determined by the value of its outstanding securities as a proportion of the overall index value. With a market-cap weighted index, the larger the company is, the larger its position will be within the index.

Related to fixed income securities (see "fixed income" for definitio) with a final end date ("maturity date"), this is the length of time until the principal amount of a bond (see "bond" for definition) must be repaid by the issuer.

Stocks with market capitalisations generally between US$2 billion and US$10 billion. As would be expected, this band of stocks come between large-caps and small-caps.

The concept that a stock performing well recently has a tendency to continue performing well.

An investment containing more than one asset class, thus creating a group or portfolio of different types of assets. Examples of asset classes include equities (see "equity" for definition), fixed income securities (see "fixed income" for definition), real estate and commodities.

Net asset value (NAV) is the total value of the fund’s assets, minus any liabilities, taken at a particular valuation point.

Also known as the ask price (see "ask price" for definition).

The Ongoing Charges Figure (OCF) is intended to represent the total annual cost of running the fund, expressed as a percentage. The OCF comprises the fund manager’s fees for running the portfolio, along with other costs, such as for administration, marketing and regulation.

A collective investment scheme that can issue and redeem shares at any time, meaning the fund grows and contracts according to investor demand. This differs from a "closed-ended fund" that has a defined maximum number of shares that can be issued.

An over-the-counter (OTC) trade is where securities or other financial instruments are exchanged directly between two parties, rather than through a stock exchange.

A passive fund is an investment vehicle that is designed to track the performance of a benchmark (see "benchmark" for definition). This differs from an actively managed fund where its manager makes discretionary investment decisions in an attempt to outperform the benchmark.

The percentage gain (or loss) achieved over a period. The performance of an ETF may be displayed in terms of how it performed relative to its benchmark (the "relative performance" versus its benchmark).

An ETF (see "ETF" for definition) that invests physically in securities to deliver its performance objective.

An investment method whereby the ETF (see "ETF" for definition) seeks to replicate the performance of an index by buying and holding the underlying securities of the index. This can be through full physical replication, meaning the ETF buys and holds all securities in the index in the same proportion as the index, or through sampling (see "sampling" for more details).

A company with higher quality generally has a stronger balance sheet, more stable earnings and higher margins compared to its average competitor.

Risk-on, risk-off reflects changes in investment activity and investor sentiment in response to economic conditions. For example, investors may sell what are percieved to be riskier assets and buy less risky assets during pessimistic or volatile market conditions (risk-off), and vice versa when economic conditions are more optimistic (risk-on).

Sampling is a type of replication method an ETF (see "ETF" for definition) can use when tracking an index. With the sampling replication method, the ETF buys and holds only some of the index constituents, with the expectation that the sample will perform broadly in-line with the index.

The market in which securities, including ETFs (see "ETF" for definition), are traded among investors.

Part of the EU’s Sustainable Finance Action Plan, the Sustainable Finance Disclosure Regulation (SFDR, also known as Disclosure Regulation) aims to promote transparency on sustainability by ensuring that participants in the financial services sector provide consistent information to clients in relation to the sustainability of the products and services they provide.

The Sharpe ratio is a measurement intended to show a fund's excess return compared to a "risk free" rate of return. It is often used as an indication of the fund's risk-adjusted performance.

A self-invested personal pension (SIPP) is a specific type of pension product that enables the individual to decide how the contributions are invested, subject to guidelines. ETFs (see "ETF" for definition) are generally allowed in SIPPs.

Size is generally measured by a company's market capitalisation, which is the current market value of its total outstanding shares.

Generally refers to a company with a market capitalisation of between US$300 million and US$2 billion.

Smart beta is a generic term for any rules-based strategy that uses characteristics other than just geography and market capitalisation to select and weight the securities of the index. Factor investing (see "Factor Investing" for definition) are examples of smart beta strategies.

A strip bond is a bond (see "bond" for definition) where the principal and regular coupon payments are sold separately.

An environmental, social or governance event or condition that Invesco considers could have a material negative impact on the financial value of one or more investments in the Fund including but not limited to, risks stemming from climate change, natural resource depletion, environmental degradation, human rights abuses, bribery, corruption and social and employee matters.

An investment in an economic activity that contributes to an environmental objective, as measured by key resource efficiency indicators on (i) the use of energy, (ii) renewable energy, (iii) raw materials, (iv) water and land, (v) the production of waste, (vi) greenhouse gas emissions, or (vii) its impact on biodiversity and the circular economy, or an investment in an economic activity that contributes to a social objective (in particular an investment that contributes to tackling inequality or that fosters social cohesion, social integration and labour relations), or an investment in human capital or economically or socially disadvantaged communities, provided that such investments do not significantly harm any of those objectives and that the investee companies follow good governance practices.

A swap is a derivative  contract where two parties agree to exchange separate streams of cashflows or returns.

A swap overlay is a technique whereby swaps are used with the objective of improving the ETF's return versus its benchmark (see "ETF" and "benchmark" for definition). For ETFs using this technique, the majority of performance would be expected to come from the physical securities held by the ETF.

Synthetic ETFs use derivatives such as swaps to seek to track the performance of the benchmark index (see "ETF", "derivative", "swap" and "benchmark" for definition).  The counterparty (usually a bank) promises the ETF provider in an agreement that the swap will return the value of the respective benchmark the ETF is tracking.

An investment method whereby the ETF (see "ETF" for definition) seeks to replicate the performance of an index by using derivatives such as swaps (see "derivative" and "swaps" for more detail). Invesco uses unfunded swaps in its synthetically replicated ETFs, known as a "physical with swap overlay" replication method (see above for more detail on this structure).

Total expense ratio consisting primarily of management fees plus custodian, licence and distribution fees.

Tracking error is a measurement of how closely and how consistently an ETF's performance has been, over a period of time, relative to the return of its benchmark (see "benchmark" for definition).

Fixed income securities issued by the US government.

Undertakings for Collective Investments in Transferable Securities.  European regulatory framework for an investment vehicle that can be marketed across the European Union.

The securities of the index that an ETF (see "ETF" for definition) is aiming to follow.

A company with a low value is perceived to be inexpensive based on certain fundamental valuation measurements.

The degree to which the price (and therefore performance) of a given security, fund, or index varies over a given time period.

Yield refers to either the interest received from a fixed income security or the dividends received from a share, expressed generally as a percentage of the current price of that security.

Yield to worst (YTW) is the most conservative measure of yield that can be received on a bond assuming that it doesn’t default on its payments.  For a callable bond, it will be the lower of the yield to maturity (YTM) or yield to call (YTC).

Yield to call (YTC) is the yield on a callable bond that assumes a bond is called by the issuer at the earliest opportunity.