FTSE Glossary

A-shares are securities of Chinese incorporated companies that trade on either the Shanghai or Shenzhen stock exchanges. They are quoted in Chinese Renminbi (RMB) Yuan. A-shares can be traded by residents of the People's Republic of China (PRC) or by international investors under the China Qualified Foreign Institutional Investors (QFII) regulations.

The number of freely tradable shares available, expressed in percentage terms after deducting the portion classified as restricted holdings from the shares in issue.

B-shares are securities of Chinese incorporated companies that trade on either the Shanghai or Shenzhen stock exchanges. They are quoted in US Dollars (USD) on the Shanghai Stock Exchange and in Hong Kong Dollars (HKD) on the Shenzhen Stock Exchange. B-shares can be traded by non-residents of the PRC and also by residents of the PRC with appropriate foreign currency dealing accounts.

The actual number of tradable shares expressed in percentage terms rounded up to the nearest FTSE free float band.

A benchmark is a commonly accepted measure of the performance of a group of investments. For example, many funds use the FTSE All-Share as a benchmark of the UK stock market's performance either to beat or track depending on whether they are an active or passive fund.

Benchmark indices are designed to capture the complete investable universe. This is in contrast to a tradable index which aims to capture the performance of the full market with the minimum of stocks i.e. The UK benchmark is the FTSE All-Share Index with over 690 stocks. The tradable index is the FTSE 100.

Any interest-bearing or discounted government or corporate security that obliges the issuer to pay the bondholder a specified sum of money usually at specified intervals and to repay the original amount of the loan at the maturity date.

A ratio used in the creation, calculation and distribution of FTSE Global Style Indices, which compares the book value of the company's assets to its price. Defined as the company's ordinary equity capital (from the most recent fiscal year end) divided by the company's market capitalisation at the review date.

The level at which the weight of a constituent may be limited if it exceeds a certain percentage within a capped index portfolio.

Capital index value only uses the share prices traded in the market. This value will fall slightly when constituent companies pay dividends, thereby reducing the value of the company and its share price. .

The investable market capitalisation proportion of a constituent as a percentage of the investable market capitalisation of an index, in short it is the constituents weight within an index.

An event initiated by a corporation that impacts its shareholders. Examples include: mergers, spin-offs, stock buybacks and stock splits. These events are monitored by the FTSE operations team in order that an adjustment can be made to the index divisor to counteract the effect that the change would have on the index. As all FTSE indices attempt to replicate the value of a given portfolio of stocks the divisor is therefore increased so that the index value does not change when the new shares in issue figures are implemented in the index and hence the capitalisation of the index rises.

FTSE's FTP site used to distribute end of day data files to clients.

The following countries are classified by FTSE as developed countries: Australia, Austria, Belgium/Luxembourg, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, United Kingdom and the United States.

The amount of a company's profits that the board of directors decides to distribute to ordinary stockholders. It is normally expressed as a percentage of the nominal value of the ordinary share capital or as an absolute amount per share.

A given percentage of the company's share price paid to shareholders in the form of dividends. It is the annual dividend market capitalisation within the index divided by the investable market capitalisation of the index.

An arbitrary number chosen at the starting date of an index to fix the index starting value (i.e. 1000.0). The divisor is also adjusted when capitalisation amendments are made to the constituents of the index in order to allow the index value to remain comparable over time. Without a divisor the index value would change when corporate actions took place and would not reflect the true value of an underlying portfolio based upon the index.

Determined by a constituent's earnings divided by the outstanding shares. Based on the latest fiscal year earnings from: minority interests, continuing operations after tax, preferred dividends but before extraordinary items and amortization for goodwill. Earnings can be adjusted for dilution.

The generic term emerging markets is used to describe a nation's social, or business activity in the process of rapid industrialization. The term "rapidly growing economy" is now being used to denote emerging markets.

The FTSE Group classifies emerging markets according to a transparent rules-based process that monitors markets status against fifteen defined Quality of Markets criteria. The FTSE Group has divided the emerging markets into advanced emerging and secondary emerging countries based on the development of their market infrastructure for greater granularity. These segments generally exhibit the following characteristics:

• Advanced Emerging: Upper Middle Income GNI countries with advanced market infrastructures and High Income GNI countries with lesser developed market infrastructures;
• Secondary Emerging: Lower Middle and Low Income GNI countries with reasonable market infrastructures and significant size and Upper Middle Income GNI countries with lesser developed market infrastructures;

Companies can raise money for business investment in two ways: borrow money or issue shares/stocks. By buying equity stocks and shares, an investor is buying an interest in a company and then takes a share in the company's future profits.

A fund that tracks an index (equaling low operating and transaction costs) but that can be traded like a stock, on exchanges. ETF's can be traded at any time throughout the day, offering the benefits of a conventional index related fund with those of listed shares. ETF's can be traded more quickly than normal investment trusts with no sales loads or investment minimums required at point of purchase. Investors acquire in a single transaction, a holding that represents all the constituent issues of a specific index enabling easy diversification of portfolios.

The term frontier markets is commonly used to describe the equity markets of the smaller and less accessible, but still "investable", countries of the developing world. The frontier, or pre-emerging equity markets are typically pursued by investors seeking high, long-run return potential as well as low correlations with other markets. The implication of a country being labeled as frontier, or pre-emerging, is that the market is less liquid and significantly less correlated to developed and even traditional emerging markets.

The FTSE Group classifies frontier markets through a transparent process that monitors markets status against a Quality of Markets criteria.

Defined as the shares in issue for a company multiplied by the closing price on a given date. This excludes small shares in issue changes as per the 1% rule, which are applied on a quarterly basis.

An investment vehicule consisting of shares in hedge funds and private equity funds, thereby diversifying the risk that would be incurred by buying into just one fund. Some of these multi-manager vehicles limit holdings to specific managers or investment strategies, while others are more diversified. Investors in funds of funds are willing to pay two sets of fees, one to the fund of funds manager and another set of fees to the managers of the underlying funds.

Growth Company

These companies are expected to have high growth rates. Growth stocks are often characterized by favourable fundamental ratios such as steadily increasing revenue growth as well as steadily increasing earnings. Those investing in a growth company are investing on the basis of the anticipated growth of the company.

H shares are securities of companies incorporated in the PRC and nominated by the Chinese Government for listing and trading on the Hong Kong Stock Exchange. They are quoted and traded in HKD. Like other securities trading on the Hong Kong Stock Exchange, there are no restrictions on who can trade H shares.

Hedge funds pool the capital of a small number of high net worth individuals or institutions under the direction of a single manager or small team. They're usually based in offshore tax havens to escape regulators and reporting requirements as well as to be free to use trading strategies which traditional, domestically regulated retail funds ar enot allowed to do. A key technique is to use short as well as long positions. This can provide protections against a falling market hence the description 'hedge fund'.

The arbitrary number set at a particular date (base date) before the launch of an index as a starting value (i.e. 1000.0).

Index values do not have any intrinsic value or meaning, they are only useful when compared to the value of the same index at a different point in time. Therefore, to directly compare the points rise of an index valued at 5000 with another index valued at 2000 is meaningless. It is only the percentage change in the values of each individual index that allows comparisons with other indices. One index point can be assigned a monetary value at a given point in time by dividing the market capitalisation of the index by the index value.

Index turnover attempts to measure the percentage of an index' total constituent value. The index that changes during a given period due to changes in the constituents or constituents' structure, rather than due to market movements. It will include additions, deletions, shares in issue changes, free float changes etc.

The company's market capitalisation used to calculate the index value. It may differ from the full market capitalisation due to the application of free float restrictions, capping weight, style weight or basket weight.

A measure of the ease of trading given to a security or index. It is used within FTSE to screen existing or prospective index constituents. It ensures that investors can buy the stock without problems resulting from an insufficient supply of shares. FTSE liquidity rules differ among index series.

These are compiled by adding the market value of the chosen constituents together then dividing by an arbitrary number (the divisor). This method most closely represents the type of investing done by modern investors and also of the availability of investments. This method is used for the vast majority of FTSE indices.

The Net Asset Value is simply the Book Value of the company's net assets divided by the number of shares issued. The resulting figure is the company's Net Asset Value (NAV) or book value per share - a base-line indicator of what a share would be worth if a company's assets were sold off i.e. in the event of a bankruptcy.

An investment evaluation method in which all cash outflows and inflows during the life of the investment are discounted with a discount rate (usually a required rate of return or the current market rate for a similar investment of the same duration).

The value attributed to a share when it is initially issued by a company. A share's nominal value bears no relation to a share's market value.

On bank holidays or other non-calculation days when no closing value is produced for an index, no prices or values will be available.

Companies raise equity capital through the issue of two basic types of stock; common stock and preferred stock. Preferred stock is a hybrid security with elements of both debt and equity. Although it is technically a form of equity investment, it has many of the characteristics of debt, such as fixed income and call provisions. Preferred stockholders have legal priority (seniority) over common stockholders in respect of earnings and in the event of bankruptcy in respect of assets, i.e. if the company is wound up they get their cash before common stock owners get theirs (if any is left).

Determined by the price of the constituent divided by the earnings per share. This provides a simple way of comparing different shares, usually within a given industry.

The Price / Sales Ratio is a way to value a company's share price in light of potential profitability. This measure is not based on earnings, but on the revenues generated by the company. The PSR is usually used to value fast growing, loss making young companies. Sales can be healthy but profits have yet to appear because of spending on research and development, marketing etc and all the costs associated with a new venture. No profits history means no EPS or P/E, so to get an indication of potential profitability sales figures are used instead of earnings.

The action of changing the time series history of an index to allow for direct comparisons with another index. Determined by dividing every value in the index series by the same number. i.e. a history of the FTSE 100 that started in 2002 at a value of 5525 can be rebased to 100 at the start of 2002 by dividing every value in the history of 55.25.

Red Chip shares are securities of Hong Kong incorporated companies that trade on the Hong Kong Stock Exchange. They are quoted in HKD. Red Chips are companies that are substantially owned directly or indirectly b the Chinese Government.

The net income divided by averaged common equity. Common equity is averaged over the accounting year. It may be adjusted to include goodwill written-off and is attributed across different share classes, where common stock is comprised of more than one share type. ROE is expressed as a percentage and is not calculated when average common equity is negative.

A way of putting a figure on the total costs of investing in a fund. The TER represents the drag on fund performance caused by all annual operating costs (including administration, trustee and audit fees), not just the basic annual management fees.

An index that calculates the performance of a group of stocks assuming that dividends are re-invested into the index constituents. For the purposes of index calculation, the value of the dividends is re-invested in the index on the ex-dividend date. Total return index data is not available at the stock level.

The degree to which the performance of the strategy used to create the portfolio differs to those of the benchmark index. Tracking error is used within FTSE when derivative indices are being created in support of portfolios based upon specific benchmark indices.

Designed to achieve similar performance to an existing benchmark index but using a smaller number of stocks in order to reduce the cost of replicating the benchmark index. This is useful for fund managers who wish to hedge their exposure to stocks or adjust their stock exposure quickly.

These companies tend to show good value in relation to selling price and as such companies tend to have low price-to-earnings or price-to-book ratios. Those investing in a value company are investing on the basis of the ratio between the share price and the underlying value of the company.

Another measure of liquidity, however it takes into account the number of shares traded. The measure is currently used within the FTSEurofirst review process. It is represented as the number of shares traded over a given period divided by the free-float adjusted shares in issue at the end of that period.

A measure of the variability of returns over a chosen time-period, revealing the extent by which the returns of an index value change from the average. Low volatility indicates the returns for an index have stayed quite close to the average whereas a high volatility would indicate a larger fluctuation over the time period. Volatility can therefore be seen as a market measure for risk.