Glossary - Janus Henderson Investors

Callable bonds

Bonds that can be redeemed or paid off by the issuer prior to the agreed maturity date.

Capital

When referring to a portfolio, the capital reflects the net-asset value of a fund. More broadly, it can be used to refer to the financial value of an amount invested in a company or an investment portfolio.

Capital expenditure

Money invested to acquire or upgrade fixed assets such as buildings, machinery, equipment, or vehicles in order to maintain or improve operations and foster future growth.

Capital flows

The movement of money for the purposes of investment, trade, or business activity between countries.

Capital investment cycle

The purchasing of fixed assets by a company for the purpose of supporting day-to-day operations.

Capital structure

Refers to the amount of debt and/or equity used by a company to fund its operations and finance its assets. The optimal capital structure is the proportion of debt and equity that results in the lowest weighted average cost of capital (WACC), i.e. the blended cost of all sources of capital, including common shares, preferred shares, and debt.

Capital ratio

A measure of the funds a bank has in reserve against the riskier assets it holds that could be vulnerable in the event of a crisis.

Carry

The meaning of carry is dependent on the context used. For a bond investor, a typical definition would be the benefit or cost of holding an asset, including any interest paid, the cost of financing the investment, and potential gains or losses from currency changes.

Case-Shiller Housing Index

An index that tracks monthly changes in the value of single-family homes in the US, commonly used as a barometer of US housing prices.

Cash flow

The net balance of cash that moves in and out of a company. Positive cash flow shows more money is moving in than out, while negative cash flow means more money is moving out than into the company.

Catchup trade

A trade designed to take advantage of a temporary dislocation in share prices between different stocks in the same sector, or between different markets where the drivers of underperformance are no longer relevant and consequent returns are therefore expected to be higher.

China A shares

The shares of companies listed on the Shenzhen or Shanghai stock markets.

Cloud computing

The provision of IT services remotely by specialised service providers over the internet.

Coincident indicator

Economic data that reflects or confirms the current state of the economy.

Collateralised Loan Obligation (CLO)

A bundle of generally lower-quality leveraged loans to companies that are grouped together into a single security which generates income (debt payments) from underlying loans. The regulated nature of bonds that CLOs hold means that in the event of default, the investor is near the front of the queue to claim on a borrower’s assets.

Collateralised Debt Obligation (CDO)

A structured finance product that is backed by a pool of loans and other assets such as mortgages, unsecured credit card debt, or personal loans. Although similar to CLOs, CDOs tend to be considered riskier given their concentrated focus and the use of complex derivatives that can obscure the relevant risk factors.

Collective investment scheme (CIS)

An investment vehicle that pools money from investors to invest in shares, bonds, cash, and/or other securities from the UK and elsewhere.

Commercial property

Any real estate asset used for commercial purposes. Commercial property has three main sectors: retail, office, and industrial; it excludes residential property.

Commodity

A physical good such as oil, gold, or wheat.

Compound Annual Growth Rate (CAGR)

Measures an investment’s annual growth rate over time, including the effect of compounding (where any income is reinvested to generate additional returns). CAGR is typically used to measure and compare the past performance of investments or to project their expected future returns.

Concentrated portfolio

A portfolio concentrated in a small number of holdings or with high weightings to its largest holdings. These portfolios typically carry greater risk than more-diversified portfolios, given that an adverse event could result in significant volatility or losses, but the potential to outperform is also greater. See also high conviction.

Consumer price index (CPI)

A measure that examines the price change of a basket of consumer goods and services over time. It is used to estimate inflation. ‘Headline’ CPI inflation is a calculation of total inflation in an economy, and includes items such as food and energy where prices tend to be more volatile. ‘Core’ CPI inflation is a measure of inflation that excludes transitory or volatile items such as food and energy.

Contract for difference (CFD)

A financial contract between two parties where the profit or loss depends on the changing price of an underlying security with the difference paid in cash. It provides exposure to the benefits and risks of taking a long or short position in a security without needing to own it.

Contingent convertible bonds (CoCos)

A type of bond that can be converted into equity (shares) if a predetermined ‘trigger event’ occurs, but which can potentially be written off in the event of a capital shortfall (insolvency) for the underlying company. Also known as an enhanced capital note (ECN).

Contrarian investing

An investment style that involves going against market consensus to purchase or sell assets. Contrarian investors believe that crowd behaviour can lead to mispricing opportunities in financial markets.

Core Personal Consumption Expenditure Price Index

A measure of prices that people living in the US pay for goods and services, excluding food and energy.

Corporate bond

A bond issued by a company. Bonds offer a return to investors in the form of periodic payments and the eventual return of the original money invested at issue on the maturity date.

Correlation

How far the price movements of two variables (e.g., equity or fund returns) move in relation to each other. A correlation of +1.0 means that both variables have a strong association in the direction they move. If they have a correlation of –1.0, they move in opposite directions. A figure near zero suggests a weak or non-existent relationship between the two variables.

Coupon

A regular interest payment that is paid on a bond described as a percentage of the face value of an investment. For example, if a bond has a face value of £100 and a 5% annual coupon, the bond will pay £5 a year in interest.

Credit

Credit is typically defined as an agreement between a lender and a borrower. It is often narrowly used to describe corporate borrowings, which can take the form of corporate bonds, loans, or other fixed-interest asset classes.

Credit default swap (CDS)

A form of derivative contract between two parties used to manage the credit risk of a bond. The buyer makes regular payments to the seller, while the seller agrees to pay off the underlying debt if there is a default on the bond. A CDS is considered insurance against non-payment and is also a tradable security. This allows a fund manager to take positions on a particular issuer or index without owning the underlying security or securities.

Credit market

A marketplace for investment in corporate bonds, government debt, and associated derivatives.

Credit rating

An independent assessment of the creditworthiness of a borrower by a recognised agency such as Standard & Poors, Moody's, or Fitch. Standardised scores such as 'AAA' (a high credit rating) or 'B' (a low credit rating) are used, although other agencies may present their ratings in different formats.

Credit risk

The risk that a borrower will default on its contractual obligations to make the required interest payments or repay the loan. Anything that improves conditions for a company can help to lower credit risk.

Credit spread

The difference in yield between securities with similar maturity but different credit quality, often used to describe the difference in yield between corporate bonds and government bonds. Widening spreads generally indicate a deteriorating creditworthiness of corporate borrowers, while narrowing indicates improving.

Crowded trade

A position held by a significant proportion of investors which can have an impact on pushing up prices, but also potentially makes it difficult to sell if sentiment changes.

CSI 300 Index

A stock market index designed to replicate the performance of the largest 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange.

Currency hedge

A transaction that aims to reduce the impact of currency fluctuations on the value of an investment; this is done by using derivatives.

Current account deficit

Where the value of goods and services that is imported by a country exceeds the value of the goods and services that it exports.

Cyclical stocks

Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as mining.