Dictionary

Learn about investment

Asset Allocation

Asset Allocation (portfolio recommendation) is a strategy that aims to optimise a portfolio of securities by apportioning its investments according to various types of shares, bonds and other asset classes.

Asset class

Asset class is a general label for investment opportunities offering various characteristics in respect of return and risk - e.g. shares, bonds, currencies and commodities. ’Asset class’ is the overall allocation criteria in a portfolio, whereas the individual paper can be assigned to an asset class.

Benchmark

A benchmark is a standard against which the performance of a security or a group of securities is measured. A benchmark is taken to reflect the trend in the market. In the United Kingdom, the FTSE 100 index is often used as a benchmark. A bond (for instance a government bond)
can also be used as a benchmark.

Bond

A bond is a debt instrument whose issuer undertakes to pay interest and instalments to the buyer (the investor) at certain times. Most bonds are issued by governments (also foreign), businesses or mortgage banks. Bonds are primarily used for the financing of buildings and some of the costs incurred by a government.

Brokerage

Brokerage is the amount that is paid for trading securities. It is the amount charged by banks to execute trades. Typically it is a percentage of the value of the trade. Normally a minimum brokerage will apply.

Corporate bonds

Corporate bonds are bonds issued by corporations/companies. The risk associated with a corporate bond is higher than that associated with mortgage or government bonds.

Cumulative fund

In an investment association, a cumulative fund is a fund that does not distribute the return on the investments to its investors. Instead the return is reinvested in the fund.

Custody accounts

A custody account is an account in which a bank holds an investor’s securities in safekeeping and registers them electronically.

Developed markets

Developed markets are the financial markets of countries that are most developed in terms of economy and capital markets and characterised by greater stability and lower returns than emerging markets.

Distributing fund

In an investment association, a distributing fund is a fund that distributes any return on the investments to its investors. The contrary is a cumulative fund, which will reinvest the return in fund.

Dividend

Dividend is the annual distribution of a company’s profits to its shareholders. The value of the dividend is determined at the company’s annual general meeting. In a way, dividend is similar to interest earned on a regular account. Dividend forms part of the return.

Duration

Duration expresses the interest-rate sensitivity of bonds as it indicates to which extent a bond may fall/increase in the event of changes in the interest rate environment.

Efficient frontier

Efficient frontier describes the optimum combination of bonds, shares and other asset classes in relation to the intended risk. The efficient frontier is used to ensure the theoretically correct relationship between risk and return.

Emerging Markets

Emerging markets are the financial markets of developing countries. Emerging markets will typically yield a higher return than the developed markets, but at the same time they involve a higher risk due to instability, poor trading volumes for the individual securities, special trading rules, etc.

Equities

See Share

Ex-dividend/coupon

Ex-dividend/coupon are investment certificates that are sold without the right to receive dividend/coupon payments. They are issued and traded from the announcement to the distribution of dividend. Trading ex-dividend/coupon will benefit new investors in respect of tax and re-investment costs.

Futures

A futures contract is a binding agreement whereby the parties commit to buying or selling a certain asset at an agreed price at a certain time in the future. A futures contract is an exchange-traded agreement entered between two parties - a buyer and a seller.

Hedge fund

Hedge funds are structured similarly to investment associations and are owned by their members. However, the investment scope of hedge funds are wider and their investment strategies differ from those of traditional investment associations.

High-yield bonds

A high-yield bond is a designation covering emerging-market and corporate bonds.

Investment association

An investment association is an association of investors who have come together to obtain the best possible return on their savings. Investment associations are owned by their members, who receive the entire profit after the associations’ expenses for administration as well as purchases and sales of securities have been covered.

Investment certificate

An investment certificate is a paper issued by an investment association.

Investment performance

See Performance

Leverage

Leverage is the use of borrowed money secured on already invested capital in order to make further investments. This is investment for borrowed money. If for instance an investor has DKK 100,000, borrows DKK 200,000 and invests the total in securities, he has invested at a leverage of 2.

OMXC20

OMXC20 is an index of the 20 most traded Danish shares.

Option

An option is a contract between a buyer and a seller which gives the right - but not the obligation - to buy or sell an underlying asset or instrument at a future time and at a previously agreed price.

Performance

Performance means the total earnings or return on an investment, e.g. shares, bonds, investment certificates, structured products, hedge funds, etc. In connection with shares, performance includes the annual dividend as well as capital gains or losses. In connection with bonds, performance covers the fixed coupon rate as well as a capital gain or loss incurred when a bond is sold or redeemed (i.e. when the bond matures).

Portfolio

A portfolio is a grouping of securities. An investors who holds more than one security has a portfolio. Holding a portfolio may be advantageous because when buying various securities, investors can reduce their risk without necessarily reducing their return.

Price

The price is the price at which shares, bonds and investment certificates are traded at a stock exchange. In other words, the price of the security.

Return

See Performance

Risk

In respect of investment, risk is an expression of value fluctuations for securities.

Risk profile

An evaluation of an investor’s willingness to take risks, and therefore a risk profile identifies whether an investors wants to assume a high or low risk when investing.

Risk diversification

Risk diversification means reducing risk by investing in a variety of securities. In this way the overall investment is not that vulnerable if the price of a single paper falls. An easy way of achieving risk diversification is to buy investment certificates in an investment association.

Share

A share is a security which vests a share of a company in the shareholder, who thus becomes a co-owner of the company in question. The price of the share - and thus the return on the investment - depends mainly on the expected earnings of the company in question. Shareholders normally receive dividend once annually immediately after the annual general meeting.

Security code

The security code is a unique number attributed to a security. Due to the security code, it is always possible to find a certain paper no matter who or which organisation is asked.