Jargon Buster - E

This simply means the stock markets of Europe, Australasia and Far East. It is most commonly seen in the US, where it is used as a term to describe non-American markets. Most US investors that invest outside America do so by using ‘EAFE funds’, in other words, funds which invest only in non-American markets, and which measure themselves against an EAFE market index.

This simply means ‘profits’! For reasons now lost in the mists of time, this industry has always used the word ‘earnings’, instead of the simple and straightforward word ‘profits’. We don’t like it, but we’re stuck with it!

These are markets which are in economies which are significantly poorer or less developed than the major international stock markets (US, Japan, Western Europe), or whose rules and regulations prevent international investors from carrying out the same kinds of transactions as in larger markets. In general, emerging markets tend to have stronger economic growth and produce higher stock market returns than developed markets. But they will also usually have considerably higher risk, for a whole range of reasons. While it’s difficult to be too general, it’s probably true to say that they tend to do well compared to developed markets when markets throughout the world are rising, and that they do somewhat worse when world markets are falling. They are usually seen as more risky markets than the developed markets, and for this reason it’s generally a good idea to take a long-term approach when investing there.

This is another classic piece of unnecessary industry jargon, which is simply used to describe company shares. So when you hear the word equities, just think of company shares! There really is no difference.

You may feel uncomfortable about your funds being invested in the shares or bonds of companies which carry out business which you believe are not ethical. Examples would include tobacco companies, cosmetic companies which test products on animals or companies which make weapons or other military hardware. Investment managers often offer you the option to avoid these types of investments, if you invest in an ethical investment fund. The investment manager of this type of fund will not allow unethical investments in the fund, so you know your funds are not being used to support business activities which you are not comfortable with. The decision as to which businesses or industries are unethical and which are ethical is not always straightforward. For this reason, some investment managers pay respected international experts in this field to give them advice. Of course, experts don’t always agree!