Absolute Return
Investment strategy which does not try to beat a benchmark index. Often the goal is specified as generating a certain performance in excess of a money market rate.

Active Asset Allocation
An active asset allocation strategy attempts to take advantage of changes in the equity risk premium - responding tactically to changing market conditions.

Advisory Mandates
These solutions offer clients proactive advice and comprehensive portfolio monitoring. The invest-ment decisions, however, are taken by the client himself (contrary to discretionary mandates). Advisory mandates are only suited for clients with experience in financial markets.

Alpha
Ratio which expresses the risk-adjusted performance of an investment fund. If the average return on a security or portfolio is larger than its expected return, the alpha is positive. If the average return is smaller, the alpha is negative.

Alternative Investments
Capital investment that is not attributable to the traditional asset classes such as equities, bonds and money market products. They show little correlation with the equity and bond markets and are therefore ideally suited as a portfolio diversification. Examples: private equity, hedge funds, commodities and real estate.

Art Banking
Art Banking provides independent, objective, and highly professional advice regarding the acquisition or sale of works of art.

Arbitrage
The practice of exploiting local and international price differences for identical assets (e.g. securities, currencies, commodities) by buying assets in the market with the lowest prices and selling them in the market with the highest prices.

Asset Management
Range of services offered by banks for the active management of a client's assets under a portfolio management mandate. Asset management is essentially synonymous with portfolio management or wealth management but in practice often refers to the service provided to institutional investors.

Backtesting
The practice of checking value-at-risk calculations and investment strategies against historic data. Backtesting enables the robustness of models to be tested under market conditions.

Basket product
Financial product made up of a range of individual securities that may be differently weighted and that replicates an index, sector or strategy. Examples of products: index certificate, basket certificate, fixed-income fund, exchange-traded fund.

Bear Market
A market condition in which prices of securities are falling or are expected to fall. Bear markets are normally accompanied by widespread pessimism and investors motivated to sell. "Bear" comes from the way a bear attacks its opponents, by swiping its paws down.

Beta
Measure of the sensitivity of an equity or a portfolio to the overall market. A beta of >1 indicates that the relevant share or portfolio is subject to larger earnings fluctuations and thus carries a larger systematic risk than the overall market.

Bull market
A market condition in which prices of securities are rising or are expected to rise. Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue. "Bull" comes from the way a bull attacks its opponents, by thrusting its horns up into the air.

Capital protection
Capital protection products guarantee investors a certain minimum repayment (usually 100%) of the invested amount at the end of its term. It should be noted, however, that the price calculated during the term of the derivative may be below the capital protection level. Depending on how they are structured, the upside potential offered by capital protection products may be either capped or unlimited.

Carry Trade
The carry trade is a popular trading strategy used in the FX market. In the Carry Trade, speculators buy high interest currencies and sell currencies with low interest rates. These positions ensure that each trading day rollover-interest will be posted to the trader's account.

Chinese Wall
Separation of lending business from securities business at a full-service bank in order to prevent a conflict of interests. Usually a physical barrier as well as a set of policies and procedures.

Collateral
Properties or assets that are offered to secure a loan or other credit. Collateral becomes subject to seizure on default. Collateral is a form of security to the lender in case the borrower fails to pay back the loan.

Credit Rating
Classification of the credit quality of an individual, firm, bank or state, or of securities issued by them. Awarded by banks or specialized rating agencies (e.g. Standard & Poor's, Moody's)

Eat well, sleep well
An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well.

ETF
Exchange traded funds are a relatively new technique. Instead of buying a unit in a tracker fund, investors can "buy" an index in the form of units which are actively traded on a stock exchange. The price of these units depend on the market price.

Family Office
A traditional family office is a business run by and for a single family. Its sole function is to centralize the management of a significant family fortune. Typically, they manage investments, taxes, philanthropic giving, trusts, and legal matters. The purpose the family office is to effectively transfer established wealth across generations.

Foundation
Legal entity which is endowed with assets by the mandatory for the benefit of third parties, known as the beneficiaries, or for attainment of a specific purpose, such as charity.

Fundamental Analysis
Also: basic analysis. Method of determining the true or intrinsic value of a share on the basis of fundamental factors (e.g. balance sheet, income statement, management record, overall industry).

Future
Also: Futures contract. An agreement between a buyer and a seller, to exchange a specified amount of a particular good for a particular price at a date in the future.

Greenshoe
An option permitting the underwriter of an initial public offering to issue more shares than originally planned if demand is substantially stronger than expected. The greenshoe enables an issuer to place additional shares on the market at the original conditions. Its named after the Green Shoe Company which first granted such an option to an underwriter.

Hedge Funds
A private collective investment vehicle which is active in the global capital markets, is oriented towards absolute returns and aims to achieve rapid capital growth. Hedge funds use a variety of hedging techniques, are lightly regulated and accept only a limited number of investors so as to ensure that their investment strategy remains flexible.

Investment Fund
Also: unit trust (UK), mutual fund (USA). Entity in which investors pool their capital for joint investment. The assets are managed by the fund management company for the account of the investors based as a rule on the principle of risk distribution.

IPO
Also known as initial public offering or going public. First sale to the general public, by issuing and listing shares of stock in a company whose equity had previously been held by a restricted group of persons.

Lead Manager
Bank acting as the leader of an issuing or lending syndicate, managing the transaction. It is normally responsible for contact with the borrower, for structure and organization of the loan agreement, the composition of the issuing syndicate and for the placement itself.

Liability
An obligation that legally binds a company to settle a debt. A liability is recorded on the balance sheet and can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. Liabilities are settled over time through the transfer of economic benefits.

Listing
Also: admission. Admission of a security (shares, bonds, etc) for official trading on a stock exchange or exchanges.

Long/Short Fund
A type of fund that mimics some of the trading strategies typically employed by a hedge fund. Unlike most investment funds, long/short funds use leverage, derivatives and short positions in an attempt to maximize total returns, regardless of market conditions. These funds invest primarily in stocks.

M&A
Mergers & Acquisitions. The M&A package of services that commercial and investment banks offer companies acquiring major shareholdings or entire companies. Usually embraces consultancy, identifying suitable investments, engineering the actual transaction and financing.

Market Maker
Securities dealer who regularly quotes bid and ask prices for selected instruments and buys and sells at those prices for own account.

Maturity
Also: maturity date, expiration date. Date on which a debt (such as a bond) becomes payable or an option expires. Borrowers who fail to meet their obligations by the expiry date are said to be in default..

Mudaraba
Partnership where one provides the capital and the other the entrepreneurial expertise with the profits being shared.

Never catch a falling knife
The term comes from an old Wall Street adage. It means that it's both dangerous and foolhardy to buy a stock that's falling because chances are it's falling for a reason and will likely continue to do so.

Option
Also: option contract. Agreement reached with a contractual partner that confers the right to buy (call option) or sell (put option) a predetermined quantity of a good or security at a predetermined price on a predetermined date. Options are traded on futures or options exchanges.

OTC Trading
Over the counter Trading. Also: off-exchange trading. A security or other instrument that is not traded on an organized exchange or a market that is not part of an organized exchange. Also includes telephone trading in unlisted securities.

Passive Management
Portfolio management strategy where the manager tracks a benchmark index while making as few transactions as possible in order to minimize transaction costs.

Pension Fund
A collective term for the assets set aside today to pay a retirement income in the future. Assets are set aside to benefit from long-term investment returns and from the tax incentives offered by the government to encourage saving for retirement. A pension fund may be established by an employer (occupational pension fund) or by an individual (personal pension or stakeholder pension).

Plain Vanilla
The most basic or standard version of a financial instrument, usually options, bonds, futures and swaps. A plain vanilla option is the standard type of an option, one with a simple expiration date and strike price and no additional features. Its opposite is an exotic instrument.

Poison Pill
Poison pills are any type of defensive maneouvre which a company might try in order to protect itself against unwanted takeover bids, e.g. stock issues, special distributions, spin-offs and management pay-outs.

Portfolio Approach to Risk Management
Rather than focus on the specific risk characteristics of each position or obligation, an asset or liability manager using a portfolio approach will analyze and aggregate risks by type and try to achieve an overall balance of risk and return.

Portfolio optimization
Use of a linear or quadratic model to structure a portfolio to maximize or minimize yield, long-term rate sensitivity, etc., or to increase or reduce exposure to certain industries, market sectors, or macroeconomic factors, subject to prespecified constraints.

Portfolio strategy
Portfolio Strategy evaluates the impact of real estate fundamentals and capital market forces on portfolio performance. Clients benefit by incorporating these factors into their decision making process to develop strategies that diversify exposure, enhance performance and achieve objectives for risk and return.

Primary Market
The market in which issuers sell newly issued securities to investors, either directly or through financial intermediaries.

Private Equity
Private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange.

Quanto
Option with a fixed exchange rate between two currencies at the beginning of the maturity. When the option is exercised, the premium is paid out in the foreign currency. Quantos exist solely as a component of another option. (They allow investors to speculate in underlyings denominated in a foreign currency and eliminate the foreign currency risk that would otherwise exist)

Retirement planning
Helping retirees to get the most out of their assets. Conducting an in-depth analysis of their financial situation and draw up a retirement strategy tailored to their individual needs, so they can maintain their accustomed standard of living after they retire and fulfil their lifelong dreams.

Rights issue
Option, usually with a very short life, distributed to a firm's shareholders and giving them the opportunity to purchase a new issue of securities below current or expected market prices. Rights may be sold or exercised or, on rare occasions, allowed to expire. Because rights are in the money at issuance, expiration is more often a result of error or inattention than of the rights having lost all value. Also called Stock Right, Subscription Warrant.

Risk diversification
Also risk spread, risk spreading. Strategy designed to reduce exposure to risk by combining a variety of investments, such as stocks, bonds, and real estate, which are unlikely to all move in the same direction. The goal of diversification is to reduce the risk in a portfolio. Volatility is limited by the fact that not all asset classes or industries or individual companies move up and down in value at the same time or at the same rate. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions.

Secondary Market
Traditional exchange or over-the-counter market in which previously issued securities are bought and sold by individual and institutional holders with brokers and dealers as intermediaries. Also called After-Market.

Sell in May and go away
According to this old Wall Street adage one who invests in stocks during the colder months and sits it out during the beach months can do quite nicely, more or less.

Sharpe Ratio
Statistic that measures the risk-adjusted performance of a portfolio by expressing the excess returns in relation to the standard deviation of the portfolio's performance. A high Sharpe ratio means that a good performance was achieved at a low risk.

Spot price
Also: cash price. The current market price. For example, the current price of a stock on a stock exchange for normal delivery or of a cash commodity for prompt delivery.

SRI
Socially Responsible Investing (SRI) takes into account environmental, social and ethical aspects of an investment in addition to traditional financial criteria.

Structured Products
A structured product is a combination of a financial instrument vehicle with one or more derivatives to form a new investment instrument. They fulfil many roles to increase the efficiency of a portfolio and can be used to change the risk-return profile.

Sukuk
An Islamic financial certificate, similar to a bond in Western finance. Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

Swap
A swap is a type of derivative where two parties agree to exchange assets or cash flows over an agreed period. They can be used to gain a desired exposure without trading in the underlying assets. Swaps can be based on equity indices, bonds, securities or interest rates.

Takaful
Islamic insurance concept which is based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants.

Tracking error
Also: deviation of return. Parameter measuring the volatility of the relative performance against the benchmark by indicating the (e.g. monthly) fluctuation of the difference between portfolio and benchmark . Especially suitable for monitoring risks incurred as a result of investment decisions.

Trend
The general tendency of a market to move in a certain direction (e.g. price developments on a stock exchange or forex market). If you can identify a trend, it can be highly profitable, because you will be able to trade with the trend. Trends can vary in length from short, to intermediate, to long term.

Trust
Legal relationship created either inter vivos or on death, by a person known as the settler. The settler places assets under the control of a trustee for the benefit of third parties known as beneficiaries. Or for a specific purpose, such as a charity.

Underwriter
Bank or intermediary that commits itself to taking up an unsold portion of a securities issue after placement.

Venture Capital
Financing provided to new and innovative companies with a view to making capital gains. Venture capital is provided by institutions specializing in this form of finance, such as venture capital companies and private equity companies.

Volatility
A statistical measure of the tendency of a market or security to rise or fall within a period of time. High volatility means that the value changes dramatically, usually due to high market uncertainty. Mathematically, this is expressed as the standard deviation from the average performance.

Wealth Management
Comprehensive range of services customized for wealthy individuals, ranging from asset management to estate planning and from corporate finance to art banking. Wealth management is more than just financial advice, as it encompasses all parts of a person's financial life.

White Knight
Company that comes to the aid of another company that is the subject of a planned unfriendly takeover. A white knight often buys larger blocks of shares or makes a merger offer.