Glossary

In this section, you will find a comprehensive glossary of topics and terms.

Asset Allocation

Asset allocation is the allocation of assets to different asset classes, regions and currencies.

Asset Class

Financial products that exhibit similar characteristics can be grouped in various categories. Classic asset classes are equities, bonds or real estate.

Barrier of entry

This is the ability of a company to protect its business model, its products from competitors, and to maintain a competitive advantage.

Benchmark

A benchmark is a comparison or reference value.

Bondpicking

The targeted selection of bonds from different issuers.

Bonds

Bonds are debt securities where the issuer can take out a loan on the capital markets. Bonds can be issued in different currencies and have different maturities and interest rates.

Bottom Up

This is an analytical approach, which first analyses the quality of an individual company, and only then the industry, and finally the overall market (in contrast: “top down”).

Buy and Hold

"Buy and hold" is an investment strategy. Securities are purchased once and then held in the portfolio for the long term.

CaRat Model

This is an in-house analysis tool for the valuation of equities. CaRat stands for cash flow rating.

Call Option

In a forward transaction, the investor has the right, but not the obligation, to purchase a security at a previously determined price.

Carry

Return on a bond when it is held in the portfolio for a period of time taking into account all sources of return.

Cashflow

This relates to the incomings and outgoings of money in a business. The cash flow is used to assess whether a company is in a position to generate funds from their own resources. This is a key factor when analysing a company’s balance sheet.

Convertible Bonds

Convertible Bonds are fixed-return securities. Aside from a fixed interest rate and the right to the reimbursement of the par value at maturity, convertible bonds additionally grant the right to convert the capital invested into shares of the underlying company.

Convexity

Convexity is an indicator for convertible bond investors. Many convertibles are more involved in the upward trend of the underlying share price rather than its decrease. This can also be referred to as the “convex profile”.

Country Risk

In some regions there are political, social or economic uncertainties that can jeopardize the value of an investment.

Covered Bonds

Covered Bonds are issued by mortgage banks which are secured by a pool of mortgages.

Credit Risk

The risk that the creditworthiness of a debtor deteriorates and leads to a payment default.

Creditworthiness

An assessment of the ability of a person, a state or a company to meet debt obligations.

Default Risk

Default risk is the risk that a borrower or the issuer of a security can no longer meet its obligations. In this case, the creditor or investor may even face a total loss.

Derivative

A financial instrument whose price depends on one or more underlying securities.

Diversification

Spreading assets across a variety of asset classes, individual securities, regions, sectors and currency areas with the purpose of reducing possible investment risks.

Dividends

Company profits paid to shareholders.

Drawdown

Drawdown is the peak-to-trough decline during a specific recorded period of an investment. It is usually quoted as the percentage between the peak and the trough. It describes the maximum loss in value after which an asset returns to its original value. Can be for investors who are interested in looking at risk and potential profit (see also: Maxim

Duration

Duration is a measure of a bond’s sensitivity to interest rate changes. Duration is expressed as a number of years.

ETF

Abbreviation for Exchange Traded Fund, a passively-managed investment fund that tracks an index and may be traded on the stock exchange.

Financial Repression

Gradual expropriation of savings through negative real interest rates; increases debt sustainability and can reduce government debt ratios.

Flash Crash

A flash crash is a sudden crash in stock prices on the stock market, which can happen within a few minutes. The recovery of the markets happens equally as quickly.

Foreign Currency Risks

The exchange rates of foreign currencies may fluctuate sharply and lead to losses for investors and companies.

Free Cash Flow

Free cash flow is a business’s cash flow which can be used, for example, for acquisitions, dividend payments and share buybacks.

Free Float

Shares of a public company that are freely available to the investing public and not in the permanent possession of a major investor.

Futures

Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date.

High Yield Bonds

Fixed-income securities from issuers with lower credit ratings. They offer higher returns but are also associated with higher risks for investors.

High-Water Mark (HWM)

The high-water mark designates the highest price reached by the net asset value (see “net asset value”) of an investment fund at the end of the period in question.

ICE Bank of America Global Government Bond Index

Bond index that tracks the performance of government bonds that have an investment-grade rating.

Implied Volatility

This mirrors the expected price fluctuations of the underlying value of an option.

Inflation

This is the general increase in the price of goods and services. Correspondingly, there is a loss in the purchasing power of money.

Investment Grade

Investment grade is a credit rating of fixed-income securities, to which rating agencies certify a good to very good credit rating (see also “Non-Investment Grade”).

Long Position

With a long position investment, an investor invests with the expectation that the asset will rise in value (in contrast: “short position”).

Market Risk

Market risk is the risk to companies or investors when the valuation of certain securities changes, for example, in the case of equities, interest rates or currencies.

Maximum Drawdown

This is the maximum cumulative loss of a fund in a given time period. Maximum drawdown tells the investor how much would have been lost if they had bought at the peak value of an investment and sold at rock-bottom value.

Moral Hazard

This occurs when one party gets involved in a risky event knowing that it is protected against the risk and that the costs will be borne by another party (taxpayers, for example).

Net Asset Value

Net Asset Value is the asset value of a fund minus the value of its liabilities.

Non-Investment Grade

NON-INVESTMENT GRADE refers to bonds to which rating agencies have given a less positive credit rating (see also "Investment Grade").

Options

This is a financial contract that gives the right (but not the obligation) to buy or sell an asset within a specified period of time at a predetermined quantity and price.

Point Of No Return

The point in a course of action at which turning back is no longer possible.

Price Risk

Securities traded on the markets fluctuate in value depending on supply and demand.

Price-to-earnings ratio (PE Ratio)

Price-to-earnings ratio is a ratio for valuing a company that measures its current share price relative to its earnings per share.

Quantitative Easing

This is the loosening of monetary policy, where central banks buy bonds to provide additional financial resources and thereby keeping the interest rates low.

Quantitative Tightening

Quantitative tightening is a monetary policy measure aimed at withdrawing liquidity from the banking system. This involves a central bank reducing its securities holdings ‒ for example, by not reinvesting government bonds at maturity.

REXP Index

A synthetic bond index which indirectly depicts the price development and current yields of German government bonds (Bunds).

Rating Allocation

The rating allocation explains how a bond portfolio is structured on the basis of the creditworthiness assessment by rating agencies of the issuers.

Roll-Down Return

For a normal yield curve, the closer to the repayment date, the lower the bond yield. Conversely, this results in a price gain for investors who hold the bond longer. The greater the interest rate differential between bonds with longer and shorter maturities, the higher the price gain.

Share Class

The assets managed in an investment fund may consist of several share classes. The investment concept in these funds is generally the same. There may be differences in the structure of the fees, the distribution of income, the currency or the limits of the investment.

Short Position

With a short position investment, an investor invests with the expectation that the asset will fall in value (in contrast: “long position”).

Spread

The difference between the bid and ask price of a stock or security. In the bond market, this refers to the yield difference between different bonds.

Stockpicking

The targeted selection of shares in individual companies.

Sub-Investment Grade

The collective term for bond ratings of issuers with a poor credit rating; in contrast: “investment grade”.

Taper Tantrum

This refers to the intense stock market reaction after the announcement by the US Federal Reserve in May 2013, indicating its intention to reduce its bond purchases. As a result, bond and stock prices, as well as the price of gold, decreased significantly.

The New Fragile

The New Fragile describes the fragility of the financial system, which results from a centralised network and is reinforced by the loose monetary policy of the central banks.

Top Down

This is an analytical approach that first analyses the general market environment and then the quality of the individual company (in contrast: “bottom up”).

Total Return

This refers to the total return of an investment. In the case of bonds, it is composed of interest income and potential price gains.

Volatility

This is the mathematical quantity indicating the margin of fluctuation of the price of securities, commodities, interest rates or investment fund shares.

Warrants

This represents the right, but not the obligation, to buy (Call) or sell (Put) underlying securities at a pre-determined price.