Glossary
The terms in this Glossary are applicable to Barings’ range of open-ended investment funds available to retail investors.
A
Absolute return
The total return of a portfolio, as opposed to its relative return against a benchmark. It is measured as a gain or loss, and stated as a percentage of a portfolio's total value.
Active investing
An investment management approach where a fund manager actively aims to outperform or beat a specific index or benchmark through research, analysis and the investments they hold. The opposite of Passive Investing.
Active share
This measures how much a portfolio's holdings differ from its benchmark index. For example, a portfolio with an active share of 60% indicates that 60% of its holdings differ from its benchmark, while the remaining 40% mirror the benchmark.
Alpha
A measure that can help determine whether an actively-managed portfolio has added value in relation to risk taken relative to a benchmark index. A positive alpha indicates that a manager has added value. Alpha is the difference between a portfolio's return and its benchmark’s return after adjusting for the level of risk taken.
Alternatives
An investment that is not included among the traditional asset classes of equities, bonds or cash. Alternative investments include property, hedge funds, commodities, private equity and infrastructure.
Arbitrage
Arbitrage refers to the practice of simultaneously buying and selling identical (or similar) financial instruments in different markets in order to profit from a difference in price.
Asset allocation
The allocation of a portfolio according to an asset class, sector, geographical region, or type of security.
Asset-backed securities (ABS)
A financial security which is ‘backed’ with assets such as loans, credit card debts or leases. They give investors the opportunity to invest in a wide variety of income-generating assets.
B
Balance sheet
A financial statement that summarises a company's assets, liabilities and shareholders' equity at a particular point in time. Each segment gives investors an idea as to what the company owns and owes, as well as the amount invested by shareholders. It is called a balance sheet because of the accounting equation: assets = liabilities + shareholders’ equity.
Bear market
A financial market in which the prices of securities are falling. A generally accepted definition is a fall of 20% or more in an index over at least a two-month period. The opposite of a bull market.
Benchmark
A standard (usually an index) that an investment portfolio’s performance can be measured against. For example, the performance of a UK equity fund may be benchmarked against a market index such as the FTSE 100, which represents the 100 largest companies listed on the London Stock Exchange.
Beta
Measure of a portfolio's or security relationship with the overall market. The beta of a market is always 1. A portfolio with a beta of 1 means that if the market rises 10%, so should the portfolio. A portfolio with a beta more than 1 means it will likely move more than the market average. A beta less than 1 means that it is likely the portfolio and market move in the opposite directions.
Blue chip stocks
Stocks in a widely known, well-established, and financially stable company, with typically a long record of reliable and stable growth.
Bond
A debt security issued by a company or a government, used as a way of raising money. The investor buying the bond is effectively lending money to the issuer of the bond. Bonds offer a return to investors in the form of fixed periodic payments, and the eventual return at maturity of the original money invested – the par value. Because of their fixed periodic interest payments, they are also often called fixed income instruments.
Bond yield
The level of income on a security, typically expressed as a percentage rate. For a bond, this is calculated as the coupon payment divided by the current bond price. Lower bond yields means higher bond prices.
Bottom-up
Bottom-up fund managers build portfolios by focusing on the analysis of individual securities, in order to identify the best opportunities in their industry or country/region. The opposite of top down investing.
Bull market
A financial market in which the prices of securities are rising, especially over a long time. The opposite of a bear market.
Buy and hold
An investment strategy where a long-term view is taken, regardless of short-term fluctuations in the market.
C
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
Spending on fixed assets such as buildings, machinery, equipment and vehicles in order to increase the capacity or efficiency of a company.
Capital gains tax (CGT)
A tax paid on the net increase in value of an investment when the investment is sold and the gain exceeds your annual exemption. (after deducting any losses and applying any reliefs)
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.
Carbon footprint
A measure of the amount of greenhouse gasses, primarily carbon dioxide, released into the atmosphere.
Central Bank of Ireland (CBI)
The Central Bank of Ireland is a regulator of the financial services industry in Ireland.
China A shares
Stocks listed on the Shenzhen and Shanghai stock markets.
Collective investment scheme (CIS)
A fund that pools money from investors to invest in shares, bonds, cash and/or other securities from the UK and elsewhere.
Commercial property
Any property 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. The sale and purchase of commodities in financial markets is usually carried out through futures contracts.
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 or inflation is a calculation of total inflation in an economy, and includes items such as food and energy, in which prices tend to be more prone to change (volatile). Core CPI or inflation is a measure of long-run inflation and excludes transitory/volatile items such as food and energy.
Contract for difference (CFD)
A form of derivative between two parties. Profit and loss depends on the changing price of an underlying security, with the difference paid in cash. It provides exposure to all the benefits and risks of owning a security, but with neither party needing to actually own it.
Contingent convertible bonds (CoCos)
Bonds that, upon a predetermined ‘trigger event’ can be converted into shares of the issuer or are partly or wholly written off.
Contrarian
An investment style that goes against market consensus or a conventional approach. Contrarian investors believe that crowd behaviour can lead to mispricing opportunities in financial markets.
Corporate bond
A bond issued by a company.
Coupon
A regular interest payment that is paid on a bond. It is 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
Refers to bonds within fixed income markets where the borrower is not a sovereign or government entity. Typically, the borrower will be a company or an individual, and the borrowings will be in the form of bonds, loans or other fixed interest asset classes.
Credit default swap (CDS)
A form of derivative between two parties, designed to transfer the credit risk of a bond. The buyer of the swap makes regular payments to the seller. In return, 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 and associated derivatives.
Credit rating
A score usually given by a credit rating agency such as Standard & Poors, Moody's and Fitch on their creditworthiness of a borrower. Standardised scores such as 'AAA' (a high credit rating) or 'B' (a low credit rating) are used however can vary depending on the credit rating agency. Moody's, another well known credit rating agency, uses a slightly different format with Aaa (a high credit rating) and B3 (a low credit rating).
Credit risk
The risk that a borrower will default on its contractual obligations to investors, by failing to make the required debt payments.
Credit spread
The difference in the yield of corporate bonds over equivalent government bonds.
Currency hedge
A transaction that aims to protect the value of a position from unwanted moves in foreign exchange rates. This is done by using derivatives.
Cyclical stocks
Companies that sell discretionary consumer items, such as cars, or industries highly sensitive to changes in the economy, such as miners. The prices of equities and bonds issued by cyclical companies tend to be strongly affected by ups and downs in the overall economy, when compared to non-cyclical companies.
D
Default
The failure of a debtor (such as a bond issuer) to pay interest or to return an original amount loaned when due.
Deflation
A decrease in the price of goods and services across the economy, usually indicating that the economy is weakening. The opposite of inflation.
Deleveraging
A company reducing its borrowing/debt as a proportion of its balance sheet. It is the opposite of leveraging.
Depositary receipt
A security issued by a bank, which can be traded on an exchange to represent the underlying securities of a foreign company.
De-rating
Investors wanting to pay less for a stock/ or, in the case of a bond, lowering the credit rating.
Derivatives
A financial instrument for which the price is derived from one or more underlying assets such as shares, bonds, commodities or currencies. It is a contract between two or more parties which allows investors to take advantage of price movements in the asset(s). Futures, options and swaps are all examples of derivatives.
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.
Discount rate
Discount rate: “discounts” future cash flows to a present value. Measuring the present value of future earnings allows an investor to have a better idea of the value of a business today.
Disinflation
A fall in the rate of inflation.
Distressed debt
A security issued by a company that is either in default or in high risk of default and involves significant investment risk.
Distribution yield
The income received on an investment relative to its price, expressed as a percentage. It enables comparisons of the level of income provided by different investments such as equities, bonds, cash or property, or between funds at a point in time.
Diversification
A way of spreading risk by mixing different types of assets/asset classes in a portfolio. It is based on the assumption that the prices of the different assets will behave differently in a given scenario. Assets with low correlation should provide the most diversification.
Dividend
A payment made by a company to its shareholders. The amount is variable, and is paid as a portion of the company’s profits.
Duration
How far a fixed income security or portfolio is sensitive to a change in interest rates, measured in terms of the weighted average of all the security/portfolio’s remaining cash flows (both coupons and principal). It is expressed as a number of years. The larger the figure, the more sensitive it is to a movement in interest rates. ‘Going short duration’ refers to reducing the average duration of a portfolio. Alternatively, ‘going long duration’ refers to extending a portfolio’s average duration.
E
Earnings per share (EPS)
The portion of a company’s profit attributable to each share in the company. It is one of the most popular ways for investors to assess a company’s profitability. It is calculated by dividing profits (after tax) by the number of shares.
EBITDA
Earnings before interest, tax, depreciation and amortisation is a metric used to measure a company’s operating performance that excludes how the company’s capital is structured (in terms of debt financing, depreciation, and taxes).
Economic cycle
The fluctuation of the economy between expansion (growth) and contraction (recession). It is influenced by many factors including household, government and business spending, trade, technology and central bank policy.
EEA
The European Economic Area. The EEA provides for the free movement of persons, goods, services and capital within specific countries.
Effective duration
Effective duration measures the duration of a bond with embedded options and helps to evaluate the sensitivity of the bond's price relative to a change in the benchmark yield curve.
Efficient portfolio management
The idea of investing in a range of assets likely to deliver the best risk-adjusted returns and operate efficiently, ie, to reduce its risk or minimise its costs.
Emerging market
Countries that are transitioning away from being a low income, less developed economy to one that is more integrated with the global economy and is making progress in areas such as depth and access to bond and equity markets and development of modern financial and regulatory institutions.
Equity
A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.
ESG
Environmental, Social and Governance (ESG) factors with a substantial impact on the current and future financial, economic, reputational and legal prospects of an issuer, security, investment or asset class. This term may also refer to factors related to significant impacts on people or planet connected to an issuer, security, investment, or asset class. At a corporate or issuer level, the disclosure of a material ESG factor would be reasonably expected by investors, as its omission, misstatement or obscuring could reasonably be expected to influence decisions that investors make on the basis of that reporting.
- Environmental factors are issues relating to the quality and functioning of the natural environment and natural systems.
- Social factors are issues relating to the rights, well-being, and interests of people and communities.
- Governance factors are issues relating to the governance of companies and other investee entities.
ESG integration
Including ESG factors in investment analysis and decisions to better manage risks and improve returns. It is often used in combination with screening and thematic investing.
Exchange traded fund (ETF)
A security that tracks an index (such as an index of equities, bonds or commodities). ETFs trade like an equity on a stock exchange and experience price changes as the underlying assets move up and down in price. ETFs typically have higher daily liquidity and lower fees than actively managed funds.
Exposure
This refers to the part of a portfolio that is subject to the price movements of a specific security, sector, market or economic variable. It is typically expressed as a percentage of the total portfolio, eg, the portfolio has 10% exposure to the mining sector.
F
Financial Conduct Authority (FCA)
The Financial Conduct Authority is a regulator of the financial services industry in the UK.
Financial Services Compensation Scheme (FSCS)
The FSCS is the UK's statutory fund of last resort for customers of regulated financial services firms. This means that FSCS can pay compensation (up to certain limits) to consumers if a UK authorised bank or building society is unable, or likely to be unable, to pay claims against it.
Fiscal/Fiscal policy
Connected with government taxes, debts and spending. Government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or ‘stimulus’) refers to an increase in government spending and/or a reduction in taxes.
Fixed income
Denotes debt instruments [securities] that pay a fixed interest rate (e.g. bond, commercial paper). Also, a universal term for bond or debt investing.
Future
A contract between two parties to buy or sell a tradable asset, such as shares, bonds, commodities or currencies, at a specified future date at a price agreed today. A future is a form of derivative.
G
Gearing
Gearing is the measure of a companies debt level. It is also the relationship between a companies leverage, showing how far its operations are funded by lenders versus shareholders. Within investment trusts it refers to how much money the trust borrows for investment purposes.
Gilts
British government bonds sold by the Bank of England, done to finance the British national debt.
Green bond
Bond instrument whose proceeds will be applied exclusively to finance or refinance, in part or in full, new and/or existing projects which contribute to environmental objectives
Greenwashing
Falsely giving the impression that a company’s products or services provide greater environmental or ‘green’ benefits than is the case.
Gross
Before tax.
Gross domestic product (GDP)
The value of all finished goods and services produced by a country, within a specific time period (usually quarterly or annually). It is usually expressed as a percentage comparison to a previous time period, and is a broad measure of a country’s overall economic activity.
Growth At a Reasonable Price (GARP)
GARP investors seek companies that are undervalued (value investing) with solid sustainable growth potential (growth investing).
Growth investing
Growth investors search for companies they believe have strong growth potential. Their earnings are expected to grow at an above-average rate compared to the rest of the market, and therefore there is an expectation that their share prices will increase in value. See also value investing.
H
Hedge
Consists of taking an offsetting position in a related security, allowing risk to be managed. These positions are used to limit or offset the probability of overall loss in a portfolio. Various techniques may be used, including derivatives.
High yield bond
A bond which has a lower credit rating below an investment grade bond. It is sometimes known as a sub-investment grade bond. These bonds usually carry a higher risk of the issuer defaulting on their payments, so they are typically issued with a higher coupon to compensate for the additional risk.
I
Illiquid assets
Securities that cannot be easily bought or sold in the market. For example, shares with a high market capitalisation are typically liquid as there are often a large number of willing buyers and sellers in the market.
Index
A statistical measure of the change in a securities market. For example, in the US the S&P 500 Index indicates the performance of the largest 500 US companies’ shares, and is a common benchmark for equity funds investing in the region. Each index has its own calculation method, usually expressed as a change from a base value.
Inflation
The rate at which the prices of goods and services are rising in an economy. The CPI and RPI are two common measures. The opposite of deflation.
International securities identification number (ISIN)
A unique code identifying a fund or security.
Investment-grade bond
A bond typically issued by governments or companies perceived to have a relatively low risk of defaulting on their payments. The higher quality of these bonds is reflected in their higher credit ratings when compared with bonds thought to have a higher risk of default, such as high-yield bonds.
Investment trust (or investment company)
An investment trust is a publicly quoted closed ended collective investment scheme that invests its shareholders' money in the shares of other companies.
IPO
Initial public offering; when shares in a private company are offered to the public for the first time.
K
Key investor information document (KIID)
A document that includes important information about a fund, including risk factors and details of charges.
L
Large capitalisation stocks (large caps)
Market capitalisation, or market cap is a measure of a company's size. It is calculated by multiplying the number of shares in issue by the current price of the shares. Large cap stocks tend to be easily bought or sold in the market (highly liquid).
Leverage
Leverage has multiple meanings:
- An interchangeable term for gearing: the ratio of a company's loan capital (debt) to the value of its ordinary shares (equity); it can also be expressed in other ways such as net debt as a multiple of earnings, typically net debt/EBITDA (earnings before interest, tax, depreciation and amortisation). Higher leverage equates to higher debt levels.
- The use of borrowing to increase exposure to an asset/market. This can be done by borrowing cash and using it to buy an asset, or by using financial instruments such as derivatives to simulate the effect of borrowing for further investment in assets.
Liquidity
The ability to buy or sell a particular security or asset in the market. Assets that can be easily traded in the market (without causing a major price move) are referred to as ‘liquid’.
M
Market capitalisation
The total market value of a company’s issued shares. It is calculated by multiplying the number of shares in issue by the current price of the shares. The figure is used to determine a company’s size, and is often abbreviated to ‘market cap’.
Money market instrument
A short-term and highly liquid fixed income instrument.
Monetary policy
The policies of a central bank, aimed at influencing the level of inflation and growth in an economy. It includes controlling interest rates and the supply of money. Monetary stimulus refers to a central bank increasing the supply of money and lowering borrowing costs. Monetary tightening refers to central bank activity aimed at curbing inflation and slowing down growth in the economy by raising interest rates and reducing the supply of money. See also fiscal policy.
Mortgage-backed security (MBS)
A security which is secured (or ‘backed’) by a collection of mortgages. Investors receive periodic payments derived from the underlying mortgages, similar to coupons. Similar to an asset-backed security.
N
Net asset value (NAV)
In relation to a fund, the market value of its assets less its liabilities. The market value is usually determined by the price at which an investor can redeem shares.
Nominal value
A value which has not been adjusted for inflation. Within fixed income investing it refers to a bond’s par value rather than its current (‘market’) value.
Non-cyclical
Companies/industries that provide essential goods such as utilities or consumer staples. While cyclical businesses produce goods and services that consumers buy when confidence in the economy is high, non-cyclicals produce items and services that consumers cannot put off buying regardless of the state of the economy, such as gas, food and electricity.
O
OEIC
An Open Ended Investment Company (OEIC) is a type of collective investment scheme and is a common structure for UK-Domiciled Funds. Most are UCITS-compliant.
Option
A contract in which two parties agree to give one of them the right to buy or the right to sell a specific asset, such as shares, bonds or currencies, within a stated time period at a price that is fixed when the option is bought. An option is a form of derivative.
Ordinary share
A share which represents equity ownership in a company and represents full voting rights and dividend entitlements if they are available.
Outperform
To deliver a return greater than that of a portfolio’s assigned benchmark. Also often called excess return.
Over the counter (OTC)
The trading of securities such as equities, bonds, derivatives directly between two parties rather than a formal centralised exchange e.g. London Stock Exchange.
Overweight
To hold a higher weighting of an individual security, asset class, sector, or geographical region than a portfolio’s benchmark which it is measured against.
P
Par value
Bonds are usually redeemed at par value when they mature. For example, if they are issued at £100, they should pay back £100 par when redeemed at maturity. Also commonly called ‘maturity value’.
Passive
An investment approach that tracks an index. It is called passive because it simply seeks to replicate the index. Many exchange traded funds are passive funds. The opposite of active investing.
Peer-to-peer lending
Money that is lent to individuals or businesses through online services that match lenders with borrowers.
Performance fee
An incentive fee paid to an asset management company if a portfolio outperforms a stated benchmark. Usually it is expressed as a percentage of the excess return above the benchmark.
Portfolio
A grouping of financial assets such as equities, bonds and cash. Also often called a ‘fund’.
Position
An investment in a single financial instrument or group of financial instruments, such as a share(s) or bond(s). For example, a portfolio can have a position in a technology company, or through several different shares take a position in the technology sector.
Preference shares
Securities that represent fractional ownership of a company and typically pay a fixed dividend but do not offer voting rights.
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’. Eg. within investment trusts, this is the amount by which the price per share of an investment trust is higher than the value of its underlying net asset value. Premium is the opposite of discount (security price trading lower than the underlying value).
Principal
Within fixed income investing, this refers to the original amount loaned to the issuer of a bond. The principal must be returned to the lender at maturity. It is separate from the coupon, which is the regular interest payment.
Private equity
Investment into a company that is not listed on a stock exchange. Like infrastructure investing, it tends to involve investors committing large amounts of money for long periods of time.
Property asset management
In property investing, this refers to the ongoing management of properties. It may include renegotiating existing leases with tenants (to deliver longer or more favourable terms) or doing refurbishments.
Public limited company (plc)
A company in the UK whose shares can be bought by members of the public and which has authorised share capital above a statutory minimum. Only public limited companies may be listed or traded on the London Stock Exchange.
R
Real estate investment trust (REITs)
An investment vehicle that invests in real estate, through direct ownership of property assets, property shares or mortgages. As they are listed on a stock exchange, REITs are usually highly liquid and trade like a normal share.
Redemption date
The repayment date/maturity date for bonds and other fixed interest securities.
Retail price index (RPI)
A measurement of inflation that examines the price change of a basket of goods and services over time. It differs from the CPI measure of inflation mainly in its calculation method and the inclusion of mortgage interest payments.
Rights issue
Rights to buy additional shares made to existing shareholders.
S
Secured loan
A loan where the borrower has promised to give the lender certain assets if they fail to make repayments.
Security
A share, bond, or any other financial instrument.
Share buybacks
The repurchase of shares by a company, thereby reducing the number of shares outstanding. This gives existing shareholders a larger percentage ownership of the company. It typically signals the company's optimism about the future and a possible undervaluation of the company’s equity.
Shares
See equity. Also commonly called ‘stocks’.
Short position
Fund managers use this technique to borrow then sell what they believe are overvalued assets, with the intention of buying them back for less when the price falls. The position profits if the security falls in value. Within UCITS funds, derivatives – such as CFDs – can be used to simulate a short position.
SICAV
Société d'investissement à capital variable. This is a common structure for European-domiciled funds. Most are UCITS-compliant.
Small cap
Stocks issued by companies with a smaller market value or market capitalisation, as measured by the total value of their outstanding shares. These companies are smaller than large caps and mid caps. Definitions based on market capitalisation value can vary.
Sovereign bonds
Bonds issued by governments and can be either local-currency-denominated or denominated in a foreign currency. Sovereign debt can also refer to the total of a country's government debt.
Spread/credit spread
The difference in the yield of a corporate bond over that of an equivalent government bond.
Stewardship
The use of influence by investors to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients' and beneficiaries' interests depend.
Sustainable and responsible investment (SRI)
An investment considered to improve the environment and the life of a community. A common strategy would be to avoid investing in companies that are involved in tobacco, firearms and oil, while actively seeking out companies engaged with environmental or social sustainability.
Swap
A contractual agreement between two parties to exchange future cash flows (or profit/ loss) resulting from two different assets according to a pre-arranged formula. Swaps can be contracted for stocks and shares, currencies and commodities. For example one party may contract to exchange the future profit or loss from an equity share in return for the interest on a cash balance of equivalent value.
Systemic risk
The risk of a critical or harmful change in the financial system as a whole, which would affect all markets and asset classes.
T
Top-down
A top-down fund manager builds a portfolio based mainly on the economic environment and asset allocation decisions. This contrasts with an approach based on individual security-specific criteria, known as bottom-up.
Total return
The capital gain or loss plus any income generated by an investment over a given period.
Transferable securities
Securities that can be transferred from one party to another without restrictions.
Trustee
A trustee oversees the fund manager's activities and must be independent of the fund manager. It acts in the interests of the unitholders and looks after the assets on their behalf, ensuring the fund is invested according to its investment objectives and that the fund manager is complying with regulations.
U
UCITS scheme
The European Union (EU) has issued directives that allow carefully regulated funds to operate freely throughout the EU. A fund operating in line with the directives is known as an Undertaking for Collective Investment in Transferable Securities (UCITS) scheme. The regulations aim to give investors a high level of protection.
Underweight
To hold a lower weighting of an individual security, asset class, sector, or geographical region than a portfolio’s benchmark.
Unit trust
A type of fund vehicle which can issue a limitless number of units whose value isare directly linked to the value of its underlying investments. Jupiter Unit Trusts are single priced, which means they have one price for buying and selling.
V
Variable rate securities
Securities with terms that allow for the adjustment of the interest rate on set dates.
Volatility
The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. Higher volatility means the higher the risk of the investment.
W
WAM (weighted average maturity)
The average time remaining until the maturity of assets in a portfolio.
Y
Yield
The level of income on a security, typically expressed as a percentage rate. 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.
Yield to maturity (YTM)
Measures the annual return an investor can anticipate for holding a particular bond until it matures. When considering an entire bond portfolio, an average yield is used based on the weightings of individual bonds within that portfolio.
