Glossary - S | Skandia UK

S & P 500

A United States stockmarket index, maintained by Standard & Poors.

S2P

State Second Pension.

Salary sacrifice

A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum foregone can be used as an additional company contribution into a pension scheme.

Satellite funds

These funds are often used to complement the Core Funds in an investor’s portfolio. They tend to be more specialised and have a higher risk/return profile.

Scattergram

A graph illustrating the annualised risk and return performance of a fund or investment manager for a specific period (greater than one year). Risk is measured by standard deviation on the horizontal axis with return on the vertical axis. A point of risk and return for each fund or investment manager is plotted, creating a number of scattered points.

Screening

Examination of various securities, usually through computer models, to identify certain predetermined factors such as valuations, earnings, liquidity, etc, with a view to the inclusion of those securities in an investment portfolio.

Secondary market

Any market in which existing securities are traded (as distinct from the primary market, in which securities are first issued). The Stock Exchange is the secondary market for share trading.

Section 226 (Retirement Annuity)

Prior to 1 July 1988, people not in pensionable employment (employment where no pension scheme exists) or people who were self-employed, were able to qualify for tax relief for contributions made to a pension scheme known as a Retirement Annuity under Section 226 of the Income and Corporation Taxes Act 1970. This was the forerunner to the Personal Pension Scheme.

Section 32

Used widely to describe a buy out bond issued under Section 591 (2) (g) of ICTA 88.

Sector

A sector is a grouping of funds with a similar investment objective and make up.

An area of the economy where businesses share the same or a related product or service, for example, pharmaceuticals, telecommunications or retail.

Sector averages

Sector averages denote the average performance of all funds within a particular sector. Sectors are governed by the Association of British Insurers for life and pension funds and by the Investment Management Association (IMA).

Sector index

Sector performance takes into account the contributions of all existing funds the sector comprises of and is therefore referred to as the 'sector index'.

The sector index performance may not match the straight average of the existing sector members, as the latter will not take into account the performance of new funds which have entered the sector during the nominated performance period and which would have affected the sector index performance. Over a long period these differences will be cumulative, resulting in wider divergence between the sector index and the straight sector average.

Sector risk number

These numbers are used to compare the volatility of fund sectors. The sectors have been arranged in ascending order according to their volatility numbers which have been calculated over 5 years and the entire range has been divided into ten segments, each representing 10% of the range with 1 being least volatile and 10 being most volatile.

Securities

A term used to describe stocks and shares.

Security

In relation to financial markets, the paper right to a (generally tradable) asset. In this context the term includes Bills of Exchange, bonds, share certificates or any other interest-bearing paper traded on financial markets; An asset pledged to ensure the repayment of a financial obligation (eg loan), and forfeited in the event of a default on that obligation.

Segregated fund

Pension scheme investments managed along side, but separately from, other investments under control of a particular manager.

Seller’s market

A condition of the market in which there is a scarcity of goods available, and hence, sellers can obtain better conditions for sale or higher prices. (As opposed to buyer’s market).

Selling (bid) price

The price at which you can sell shares or units in a unit trust or units in a life policy.

SERPS

SERPS
State Earnings-Related Pension Scheme.
The Government introduced SERPS in 1978 as an earnings-related top-up to the basic state pension. It was replaced with the State Second Pension in April 2002. Whether you are entitled to SERPS depends on your earnings while you were in employment and the National Insurance contributions you and your employers paid; therefore self-employed do not qualify for this pension.

Settlement

In relation to share trading, an arrangement between brokerage houses for the payment or receipt of cash or securities. It represents the final consummation of a securities transaction and is handled through a clearing house.

Settlement date

The date on which the final consummation of a securities transaction takes place and payment is made.

Settlement risk

In relation to foreign exchange transactions, the exposure of one party to another on the value date of the contract. It is the risk that one party, having received settlement of one currency amount from the counterparty, is unable to effect settlement of the other currency amount.

SFC recognised

Indicates that a fund is regulated by the Securities and Futures Commission of Hong Kong.

The ownership of part of a company; a contract between the issuing company and the owner of the share which gives the latter an interest in the management of the corporation, the right to participate in profits and, if the company is dissolved, a claim upon assets remaining when all debts have been paid. See also equity.

Share capital

The money paid (subscribed) for ordinary and preference shares in a limited company. Authorised share capital means the total amount of shares available to be issued. Issued share capital relates to the total amount of shares actually subscribed for.

Share certificate

A piece of paper representing legal evidence of ownership of a stipulated number of shares in a company. Also known as scrip.

Share exchange

Owners of unit trusts may use shares they already own to make an investment without having to sell them first. This saves dealing charges.

Share holder

The owner of one or more issued shares of a company who is normally entitled to: a proportionate share of the issuing company’s undivided assets; dividends when declared by the directors; and the right of proportionate voting power.

Share option

An offer by a company, usually to its employees and directors, to buy its Shares at a given price, before a specified date. A number of approved share option schemes offer tax-free capital growth.

Share Price Index

An index measuring movements in the price of shares, but not of their dividends (as opposed to an Accumulation Index, which measures movements in both price and dividend income).

Share register

A register recording all of a company’s shareholders and the number of shares they each hold.

Sold by a company to raise money. Shares give the owners an interest in the company and a right to share in the profits.

Sharpe Ratio

A statistical measure which attempts to show the performance of a portfolio’s return in risk adjusted terms. It is calculated by dividing the portfolio’s excess return over the risk-free rate by the risk (ie standard deviation) of portfolio returns. The higher the Sharpe Ratio, the better the portfolio’s return in risk adjusted terms. A Sharpe Ratio higher than one can be considered to be very good, while a ratio below 0.1 shows that the portfolio has been poorly rewarded for the risk undertaken.

Short position

An excess of sales over purchases of a relevant commodity, currency or investment instrument (As opposed to long position).

Short selling

The sale of a security that is not yet owned, in the expectation that its price will fall so that it can be bought back at a later date.

Shorts

Bonds or Gilts that have a redemption date within five years. Some institutions use seven years as the cut-off date.

Single life pension

A pension that is paid for the lifetime of the policy holder only.

Single premium

A one off payment into an insurance policy or pension.

Single price

This refers to the range of Skandia pension funds where the pricing does not include an initial charge, and hence buying and selling takes place at the same single price of the fund.

Single pricing

Single pricing means that there is just one price for both buyers and sellers of the units or shares. This contrasts with dual pricing where there is one price for sellers and a higher price for buyers, sometimes known as a bid/offer spread.

Small gifts exemption

An annual Inheritance Tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees).

Smaller companies

Generally, companies with a market capitalisation of less than US$1 billion or the bottom 25% of the market, although definitions differ.

Soft Dollars

Payment for research-related services by commissions generated from trading rather than fees.

Specialist manager

An investment manager which confines its investment activity to specific asset classes (eg equities, fixed interest, property, overseas shares, etc.) instead of (or as well as) balanced funds. See also balanced manager.

Specific risk

Uncertainty in the return of a share arising from factors specific to the company concerned. It is unrelated, or, at most, distantly related, to events that impact on other comparable firms or the market as a whole. Unlike market risk, specific risk can be diversified away.

Spread

In relation to share, bond and currency markets, spread is the difference between the bid price and the ask (offer) price, incorporating both an estimate of demand and potential profit for the seller. In relation to unit trusts, spread is the difference between the allocation of redemption price of units, as a result of transaction costs incurred in buying and selling the underlying securities which make up the value of the trust. In relation to option markets, spread is the holding of a long position and an offsetting short position, usually in contracts with the same underlying security or asset.

Stag

An investor in the share market who aims for quick gains by subscribing to new share issues and then selling once the shares commence trading on the exchange.

Stakeholder pension

Stakeholder pensions were introduced from 6 April 2001. The Government has laid down minimum standards to ensure that all stakeholder pensions meet the same basic criteria for payments, costs and terms.

Stamp duty

A flat rate tax on the purchase of shares, at 0.5% of their value. On the purchase of property (until 31 December 2012) there is no duty up to £125,000. From £125,000 to £250,000 the duty is 1%, and rises to 3% of the value on properties sold for £250,00 to £500,000, and 4% above £500,000.

Standard & Poor's (S&P)

A credit rating organisation.

Standard deviation

A statistical measure of the dispersion of a set of numbers around a central point. If the standard deviation is small, the frequency of distribution is concentrated within a narrow range of values. For a 'normal' distribution, about two thirds of the observations will fall within one standard deviation of the mean. Standard deviation is a commonly used measure of risk because the higher the standard deviation the higher the uncertainty of the return. As standard deviation measures the volatility of investment returns, it is an important measure of risk. Also known as standard error.

State Earnings-Related Pension Scheme (SERPS)

State pension schemes

Basic state pension – if you have a full National Insurance contribution record you are entitled to the full basic state pension.

State pensionable age

Fixed retirement ages for men and women, currently 65 and 60 respectively. To be equalised to 65 for men and women, by April 2020 (with ten years ‘phasing-in from 2010). This is the age at which state benefits may be taken as pension income.

State Second Pension (S2P)

This replaced SERPS in April 2002. The State Second Pension is paid in addition to the Basic State Pension.

Stock

A generic term for equities (shares) and, less frequently, bonds. See also Security.

Stock broker

A professional person who buys and sells securities on behalf of others in return for a commission (or brokerage).

Stock exchange

A market where stocks and shares are bought and sold.

Stock market

A place where shares or other securities are bought and sold e.g. the London Stock Exchange.

Stock selection

The selection of an individual security within an asset class. For example, stock selection in relation to equity investments is made after analysing the financial standing, future earnings prospects and valuation of the shares of the company concerned. Along with asset allocation, stock selection is a key way in which investment managers add value.

Stockbrokers

Agents who buy and sell stocks and shares for customers.

Stocks and shares

A stock generally refers to fixed interest securities, usually issued in denominations of £100. Shares are sold by a company to raise money. Shares give the owners an interest in the company and a right to a share in the profits.

Strategic asset allocation

The composition of the asset mix within a portfolio, constructed with the objective of meeting the long-term views of relative performance of the various asset classes. Usually a benchmark is derived in this fashion. See also asset allocation, tactical asset allocation.

Subscription

An agreement to purchase a certain offering, eg a certain number of shares for a stipulated price.

Subsidiary

A company which is wholly or partly owned by another company but which (unlike a branch office) is still a distinct legal entity responsible for its own tax, regulatory compliance, etc.

Sum assured

The guaranteed amount paid on death or maturity under a life assurance policy.

Sum insured

For non-life insurance it is the maximum amount the insurance company will pay out for a claim. For life assurance it is the amount that is guaranteed to be paid on death.

Superannuation

A means of setting aside funds during working life for use as retirement income, under a regulatory system which provides certain taxation incentives and prudential controls for the benefit of contributors. See also pension.

Surrender value

The amount of money that will be paid to a policy holder if they discontinue a policy before it matures. The benefits the customer usually receives are reduced because of the effects of the charges.

Swap

An interest rate, currency or equity exchange transaction involving two parties. In the case of an interest rate swap, one party is obliged to pay a fixed interest rate to the other party in return for a floating interest rate. In the case of a currency swap, one party is obliged to make payments in another specified currency.

SWIFT

Society for Worldwide Interbank Financial Telecommunication.
A non-profit electronic trade confirmation system that provides secure messaging services and interface software to financial institutions globally.

Switching

Transferring sums of money from one unitised fund to another. This is usually done on a bid-to-bid basis to avoid ‘new money‘ charges when buying units at the offer price.

Switching facility

The ability to transfer units between two funds or components of a unit trust or life policy.

Systematic risk

The systematic risk is the portion of the risk that relates to the movements in the underlying market of which this asset forms part. Systematic risk is normally measured in terms of beta. It should not be confused with systemic risk.

Systemic risk

Risk pertaining to the fundamentals of a system as a whole – eg in the case of banking, the risk of failure of the payments system or, in the case of property, a collapse of valuations owing to there being no buyers in the market. Systemic risk should not be confused with systematic risk, which relates to risks associated with individual securities rather than markets as a whole.