Glossary

Discount

When the market price of a security is thought to be less than its underlying value, it is said to be ‘trading at a discount’. Within investment trusts, this is the amount by which the price per share of an investment trust is lower than the value of its underlying net asset value. The opposite of trading at a premium.

Ex-Dividend

Typically, the ex-dividend date for a share is one business day before the record date, meaning that an investor who buys the share on its ex-dividend date or thereafter will not be eligible to receive the declared dividend. Rather, the dividend payment is made to whoever owned the share the day before the ex-dividend date.

Gearing

Companies are financed by a combination of debt and shareholders' equity. Gearing is a ratio that will tell how much a company has borrowed relative to the amount of shareholders' funds in the business. It is normally calculated using net debt, i.e. total borrowings less cash.  If assets rise in value, gearing magnifies the return to ordinary shareholders. Correspondingly, if the share price falls, gearing magnifies the fall.

Leverage

Financial leverage is the process of borrowing money in the form of debt to increase the potential reward from an investment opportunity.

Market Capitalisation

The total market value of a company’s issued shares. It is calculated by multiplying the total number of shares in issue by the current market price per share. The figure is used to determine a company’s size and is often abbreviated to ‘market cap’.

Net Asset Value (NAV)

The total value of a company’s assets less its liabilities.  This term is commonly used by investment trusts. If an investment trust is trading below its NAV, it is said to be trading at a discount. If the opposite is true, the investment trust is trading at a premium.

NAV (Cum Income)

The value of investments and cash, including current year revenue, less liabilities (prior charges such as loans, debenture stock and preference shares at fair value).

NAV (Ex Income)

The value of investments and cash, excluding current year revenue, less liabilities (prior charges such as loans, debenture stock and preference shares at fair value).

NAV total return

The theoretical total return on shareholders' funds per share based on NAV assuming that dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance, which is not affected by movements in discounts/premiums.

Net cash

A company’s net exposure to cash/cash equivalents expressed as a percentage of shareholders’ funds, after any offset against its gearing. This is only shown for companies that have gearing in place.

Ongoing Charges

The ongoing charges represents the total recurring operating and investment management costs of the investment trust expressed as a percentage of its NAV.

Premium

When the market price of a security is thought to be more than its underlying value, it is said to be ‘trading at a premium’. Within investment trusts, this is typically the amount by which the price per share of an investment trust is higher than the value of its underlying NAV. Premium is the opposite of trading at a discount.

Shares

Shares represent part-ownership of a company. As a shareholder you own a ‘share’ of the business, and the monetary value attached to it, which can be sold to other investors.

Share Price

The share price is the value of the share at a given moment. It is determined by the balance between demand and supply on the stock markets. There are different share prices quoted in the market:

• Bid/Sell is the price offered in the market to buy shares from an investor, also referred to as the selling price.
• Offer/Buy is the price offered in the market at which shares are offered to investors, also referred to as the buying price.
• Mid-market price is calculated as the midpoint between the bid and offer prices and is used to calculate price-related data.

Share Price Total Return

The theoretical total return to the investor assuming that all dividends received were reinvested in the shares of the company at the time the shares were quoted ex-dividend. Transaction costs are not taken into account.

Total Assets

Cum Income NAV multiplied by the number of shares, plus prior charges at fair value.

Yield

A yield measures any income from an investment over a set period, such as dividends from shares or interest from bonds. It shows how much income an investor earns every year relative to the initial cost or market value of their investment. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, this is calculated as the coupon payment divided by the current bond price.