Investment fund names are often a baffling mixture of fancy but vague words, which mean little to people who aren’t already clued up on financial jargon.
There are thousands of funds and investment trusts out there to choose from, and investors – particularly newcomers – need to be clear what terms such as alpha, dynamic or special situations actually mean before they start risking their money.
People hoping to boost their savings by buying a fund or trust face a steep learning curve, unless they’re lucky enough to have a friend in the know or are willing to fork out fees to a financial adviser.
We have tried to provide a short cut, by compiling a list of common terms that often pop up in fund names along with simple explanations.
FIND OUR FUND NAME JARGON BUSTER BELOW
Patrick Connolly: ‘I can think of lots of funds that are high risk. I can’t think of any that are called high risk’
High Yield
Buys the riskier corporate bonds, which means company debt given lower scores by credit rating agencies Standard and Poor’s, Moody’s and Fitch. When a company’s bonds are deemed risky, they have to pay a higher coupon – interest rate – to attract investors. That translates to better returns, providing the company issuing the bond doesn’t go bust. High yield bonds are also known as junk bonds (see Income).
Income
Invests with the aim of generating a good stream of earnings, which is prioritised over growing capital as fast as possible. This strategy often means just buying reliable dividend-paying stocks. However, an income fund might also invest in what are known in industry jargon as fixed-income assets like corporate and government bonds. Those that buy corporate bonds tend to focus on ones that are ‘investment grade’, which means company debt given a good score by the credit rating agencies. The firms use different codes for their scores, but basically anything between AAA and BBB or equivalent is investment grade. Anything BB and below is a riskier junk bond – or high yield bond, which is the politer moniker preferred by the investment industry (see High Yield).
International
Invests all over the world but not in the UK (see Global, Overseas and Foreign).
Leaders
Invests in high quality companies, usually the biggest or with the potential to be the biggest in their sector, with strong brands and very little chance that new entrants can challenge their status. The emphasis tends to be on pursuing growth rather than income (see Growth and Income).
Long-Dated
This term is sometimes included in bond fund names to indicate that the debt being held has a maturity date some way into the future, when all being well the money investors have lent will be repaid. Bonds with a long maturity date tend to be regarded as riskier than those with a shorter one because there is more time for things to go wrong before you get your money back. However, in times of crisis investors sometimes decide short-dated debt is just as or more risky than long-dated debt. The latter phenomenon is explained here. (See Short-Dated.)
Long Short
This is a hedge fund strategy where bets are made that some stock prices will fall (going short) while others will rise (going long) with the overall goal of making money in both good and more challenging market conditions. This can be a complicated and risky area, and as with other hedge fund strategies make sure you fully understand it before you invest.
Opportunity
Invests in assets that have high growth potential, but with lot of risk attached.
WHICH VERSION OF A FUND SHOULD YOU BUY?
If you’ve worked out what a ‘select’ or ‘optimal’ fund actually does and decided to invest, you will still have to decide which version of it you want.
There are sometimes a dozen or more versions of the same fund, officially called ‘share classes’, available to investors. You can check them out by visiting This is Money’s fund centre here.
To differentiate between these share classes, fund names are tagged with various abbreviations like Acc, Inc, and an array of apparently random letters and numbers – I, U2, B and so on.
Jason Hollands of Tilney Bestinvest says: ‘The problem for investors is that there is no industry standard for labelling different fund share classes which means this stuff can be completely as meaningless as Morse code.’
This is Money has a guide to decoding the most common fund abbreviations below
Opportunistic
Invests in unloved assets in hope of a big turnaround, and/or takes large risks in the hope of maximising the eventual rewards.
Optimal
Indicates the manager has flexibility to switch assets around depending on where they see the best opportunities.
Macro
Short for macroeconomics, which involves looking at the economy as a whole, as opposed to microeconomics, which is about the behaviour of an economy’s components like market sectors, companies or individuals. In this context, it means a fund invests to exploit broad economic or political changes in the expectation this will be profitable.
Managed
Run by a professional manager. This is also the case with lots of funds that are actively managed to beat the market but some firms choose to emphasise this aspect in their fund names. Managed funds come in a few different varieties, but usually they are invested across many different asset classes in order to spread risk and offer a simple, all-in-one approach. They are generally designed to appeal to people who are inexperienced at investing, nervous of losses, don’t have much money to risk, or have a combination of the above characteristics. ‘Cautious managed’ is a common version of a managed fund (see Diversified and Multi Asset).
Managed Volatility
Tries to smooth out returns by investing in less risky stocks but still make a profit.
Multi Asset
Investments are spread across a lot of different asset classes. Some offer an all-in-one approach, so investors don’t have to invest in lots of funds to get exposure to all markets. However, investing experts don’t tend to advise putting all your money in just one fund, a topic we explore here. (See Diversified and Managed.)
Micro Cap
This means a fund invests in very small companies, which offers the opportunity of a big return if they succeed and enjoy massive growth, but is riskier than putting money in larger well-established firms. These funds tend to invest in a lot of companies, so risk is thinly spread and returns aren’t too badly damaged when one of them fails. Another reason to do this is that these funds can’t take too large a stake in any one company, otherwise they become the majority shareholder or outright owner. Cap stands for capitalisation, and market cap is shorthand for the size of a company. You can calculate market cap by multiplying a company’s share price by the number of shares it has outstanding.
Multi Cap
Many funds concentrate on either large cap or small cap stocks, with maybe a bit of overlap with mid cap stocks at each end. However, multi cap funds invest across the entire spectrum.
WHAT HAVE WE MISSED OUT?
Is there fund name jargon that has always baffled you, which we’ve not covered here?
Let us know in the comments section and we will update this list in future to make it as comprehensive as possible.
Overseas
Invests all over the world but not in the UK, providing it’s a fund based in the UK. But it might also indicate that the fund is not based in the UK, so check (see Global, International and Foreign).
Recovery
Picks unloved stocks or other assets with turnaround potential (see Special Situations and Value).
Responsible
Invests in companies that adopt ‘ESG’ – environmental, social and governance – policies.
Select
Investments are actively managed to outperform the market. The term also implies a focus on a particular type of holding or a specific fund goal, but it’s so vague you will have to investigate further when it comes to individual funds (see Focus).
Short-Dated
This term is sometimes included in bond fund names to indicate that the debt being held has a maturity date only a short time from now, when all being well the money investors have lent will be repaid. Bonds with short maturity dates tend to be regarded as less risky than those with longer ones because there is not as much time for things to go wrong. However, in times of crisis investors sometimes decide short-dated debt is just as or more risky than long-dated debt (see Long-Dated).
Special Situations
Picks stocks where a one-off event – a scandal, a spin-off – can create an opportunity to make money. This will often involve unloved companies with turnaround potential (see Recovery and Value)
Strategic
This is an indicator that the manager has a lot of scope to switch up investments depending on current and anticipated market conditions and where they can find the best opportunities. Bond funds and multi asset funds will sometimes include this term.
Systematic
Chooses funds according to a pre-set, computer-driven pattern, an approach used by some hedge funds. Make sure you understand what is involved and the risks before you invest.
Value
Picks unloved stocks or other assets with turnaround potential (see Recovery and Special Situations).
HOW TO DECODE FUND ABBREVIATIONS
Investors who check portfolio performance will find there can be a lot of different versions of a single fund, with an array of abbreviations tacked onto the end of each one.
Only some are standard across the industry. In many cases, fund houses stick different letters on versions of the same fund – C, W, Z and so on – which can mean different things.
These abbreviations got even more complicated after the arrival of a new class of ‘clean funds’ a few years back.
These are versions of existing investment funds that include no fees for middlemen, just the basic fee levied by the fund manager.
Investors have good reason to seek out clean funds since they are typically cheaper, but there’s no way to identify them at a glance.
Instead of using ‘clean fund’, or ‘C’ or some other universal word, letter or code as a label for these new products, fund providers all went their own ways and gave them different names or letters, making it hard to tell them apart from the old kind.
Sometimes the easiest way to find out which is the clean version of a fund is just to ring up and ask the investment company itself.
We explain the most common fund abbreviations below.
Acc: Accumulation – income like dividends or interest is automatically reinvested
Inc: Income – income is distributed by the fund instead of being reinvested
Dis: Distribution – income is distributed by the fund instead of being reinvested
I/Inst: Institutional – fund is aimed at corporate investors like pension funds
R: Retail – fund is aimed at ordinary investors, but will almost certainly include old-style commission payments so opt for the ‘clean’ version instead
A, B, C, M, X, W, Y, Z etc: Different fund houses use letters for different things. Check with them what they stand for and which indicates the clean, commission-free version
U2: Fund firm has struck a deal with some of the biggest brokers – Hargreaves, Bestinvest and so on – to give their customers a lower fee
Gr: Stands for gross
GBP/£: Fund denominated in pounds
EUR/€: Fund denominated in euros
USD/$: Fund denominated in US dollars
