Educational materials

One of the interesting effects of the financial crisis has been the addition of a plethora of new words and phrases that market participants and journalists now use to describe the economy. Best referred to as financial jargon, the following explanation will attempt to demystify a few (clearly not all) of the words and phrases that have peppered the financial landscape over the past few years. Some words or phrases have graced front page headlines and will likely gain a permanent place in financial dictionaries, and more importantly, are no longer flagged up by spellcheck. Others have shone brightly before fizzing out and are now barely uttered or spoken of.

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At M&G we offer currency-hedged share classes on many of our retail funds. The aim of the hedged classes is to mitigate the impact on performance of exchange rate movements between the fund’s currency exposure and the investor’s chosen currency. For example, a euro-based investor in a sterling bond fund may wish to capture just the return from sterling bonds. A euro-denominated share class would deliver this return, but with the additional impact of movements between sterling and the euro. A euro-hedged share class, however, would seek to mitigate this additional impact, leaving the investor with just the desired exposure to the performance of sterling bonds.

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The M&G Portfolio Construction & Risk (PCR) team uses a variety of risk systems and techniques to analyse risk exposures and sources of performance of the M&G equity funds. This enables the team to capture intended investment risks and, more importantly, the unintended risks that can arise from a bottom-up, stockpicking investment approach based on company fundamentals. We list below definitions of the key risk measures from each system used by the team in order to assist in the interpretation of their analyses.

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