Glossar

This glossary provides a concise overview of key technical terms that are frequently used in our work.
It combines the general glossary with the sustainability glossary, bringing together all terms—from traditional finance and investment terminology to terms from the areas of ESG, sustainability, and the Sustainable Development Goals (SDGs)—in one place.

2030 Agenda
The 2030 Agenda is a global action plan adopted by the United Nations on 25 September 2015. It sets out 17 Sustainable Development Goals (SDGs) to be achieved by 2030. These goals cover environmental, social and economic dimensions and include, among others, poverty reduction, climate protection and the promotion of sustainable consumption and production patterns.

Absolute Return
Absolute return measures the change in value of an investment over a given period of time. This return is not measured relative to another investment or index (benchmark), hence the term “absolute”. Managers of absolute return funds aim to achieve a consistently positive return regardless of the prevailing market environment. They are usually given a quantitative return target (typically a minimum return in percent) against which they are measured and are more flexible in selecting and weighting asset classes.

ABV Risk Metrics
Risk classification of investments based on the ABV guideline on risk management into levels 1 (lowest risk) to 3 (highest risk). These metrics are mainly used by German occupational pension schemes for professional associations.

Active Ownership
Active ownership describes investors’ proactive influence on companies they have invested in by exercising their shareholder rights. This influence is exerted through direct dialogue with management (engagement) and by exercising voting rights at general meetings. The aim is to encourage companies to adopt more sustainable practices and to increase long-term corporate value.

Active Share
Active share measures how much the composition of a fund differs from that of its reference index. It is calculated by taking the absolute difference between the weight of a security in the fund and its weight in the benchmark index for all holdings, summing these differences and then dividing the result by two.

Active Total Risk
Active total risk describes the totality of risks arising from the active management of a portfolio. It captures the deviation of the return of an actively managed portfolio from the return of a benchmark index. This deviation is measured by the standard deviation of the difference between portfolio and benchmark returns, also known as tracking error. The risk results from deliberate portfolio management decisions, such as the targeted selection of specific securities, sectors or asset classes.

Agio
For bonds, the agio is the difference between the lower nominal value and the higher issue price or market price.

AIFM Directive
The European Alternative Investment Fund Managers Directive (AIFMD) regulates managers of alternative investment funds. It applies to managers of open-ended and closed-ended funds that are not already regulated under the UCITS Directive.

Alpha
In financial theory, alpha is the measure of outperformance (positive alpha) or underperformance (negative alpha) of an investment relative to a benchmark. The alpha factor corresponds to the part of a security’s return that is independent of the market return. The benchmark is usually a market index (such as the DAX) or a well-known investment fund.

Alternative Energy
Alternative energy, also referred to as renewable energy, comprises energy sources that are available indefinitely or can be replenished in a relatively short period of time – in contrast to fossil fuels such as coal or natural gas.

Alternative Food
Alternative food refers to a range of innovative food products that offer an alternative to conventional food, for example plant-based meat substitutes, cultured meat or insect-based protein products.

Alternative Investment Fund (AIF)
Funds that are not undertakings for collective investment in transferable securities (UCITS) within the meaning of the UCITS Directive. Examples of AIFs include real estate funds, hedge funds and private equity funds. Managers of AIFs are regulated under the AIFMD, whereas the funds themselves are generally not subject to product-specific regulation.

ART
FERI ART is a proprietary analytical tool developed by FERI to determine the factor exposure of an investment. It is based on a non-linear and dynamic factor-based risk model and analyses statistical relationships between an investment and almost 200 traditional and alternative factor premia and risk factors.

Article 6, 8 and 9 Products
The Sustainable Finance Disclosure Regulation (SFDR) requires financial market participants to transparently disclose the sustainability characteristics of their products. Products are grouped into three categories:

Article 6 products: Consider sustainability risks, but do not pursue explicit environmental or social objectives. They are regarded as conventional products without a specific sustainability focus.
Article 8 products: Promote, among other characteristics, environmental or social features. Even though sustainability is not the primary objective, corresponding information must be disclosed.
Article 9 products: Have a clear sustainable investment objective. They invest exclusively in sustainable investments and must transparently explain how this objective is achieved and measured.

This classification is intended to improve transparency in financial markets, provide investors with a sound basis for decision-making and help prevent greenwashing.

Artificial Intelligence (AI)
Artificial Intelligence (AI) is a subfield of computer science that deals with the automation of intelligent behaviour and machine learning. AI systems aim to replicate certain aspects of human problem-solving by enabling machines to analyse complex situations, evaluate options and make goal-oriented decisions based on algorithms and data. Applications range from pattern recognition and natural language processing to autonomous systems.

Asset Allocation / Allocation
The weighting of asset classes (equities, bonds, real estate, precious metals, currencies, etc.) within a portfolio. By diversifying across several asset classes, overall risk can be reduced to a level below the sum of the individual risks. The asset allocation with the lowest possible risk is referred to as the minimum-variance portfolio.

Asset Class
An asset class groups together different investment opportunities in the capital market according to certain criteria. The main asset classes are equities, fixed-income securities (bonds), money market instruments, commodities and real estate or other forms of participation (e.g. in power plants, roads etc.). Asset classes are typically also defined by region (e.g. Europe, USA, emerging markets).

Asset-Liability Analysis
Asset-liability analysis takes into account risk-bearing capacity, risk appetite and other interdependencies. The aim is to achieve a balance between benefits or obligations on the liability side and their funding on the asset side. In addition, assets and liabilities are monitored over time with regard to their returns and interest-rate sensitivity.

Automatic Rebalancing
The restoration of a strategic asset allocation. It is closely linked to the buy-and-hold approach, the basic idea of which is to avoid frequent portfolio reallocations and instead periodically adjust the portfolio back to the strategic target weights.

Backtesting
Backtesting is the creation of a hypothetical portfolio performance history by applying current asset selection criteria to past time periods.

BaFin
BaFin is the German Federal Financial Supervisory Authority. It is responsible for supervising banks, financial service providers, insurers and securities markets in Germany. See also: WpHG (German Securities Trading Act).

Basis Points
One basis point equals 0.01 percentage points. Consequently, 1% corresponds to 100 basis points (bp).

Benchmark
A benchmark is a reference for assessing the performance of an investment. It is usually an index against which the return and risk profile of a portfolio or fund are compared.

Best-in-Class
Under the best-in-class approach, companies are selected from a broad investment universe across all sectors that demonstrate the best sustainability performance within their respective industry.

Beta
Beta is a measure of the relative volatility of a security compared with the overall market. It reflects the sensitivity of the security’s price to movements in the market and is an important risk metric. A negative beta indicates an inverse relationship to the market. A beta of 0 shows no correlation with market movements. A beta between 0 and 1 means that the security is, on average, less volatile than the market. A beta greater than 1 indicates that the security tends to be more volatile than the market.

Biodiversity
Biodiversity refers to the variety of all life forms and ecosystems on Earth. In a financial context, biodiversity-related risks and opportunities are increasingly considered in investment decisions, as the loss of biological diversity can have significant economic impacts.

Bond
A bond is a security that usually offers a fixed interest payment. The maturity and the type of payments at maturity are predefined. At the end of the term, a payment is usually made at 100% of the nominal amount. The investor in a bond has a claim to payment against the issuer.

Bottom-up Approach
An investment approach that focuses on the analysis of individual companies. Macroeconomic factors and sector considerations are secondary to company-specific fundamentals. It is therefore an analysis “from the bottom up”. Opposite: Top-down approach.

Brownfield
A brownfield site is land that has been previously developed for industrial or commercial use, is often contaminated, and has subsequently been abandoned or is underused.

Buyout
An investment strategy that focuses on established companies, often with the objective of improving operations and/or financial structures. Buyouts are typically financed through a mix of equity and debt and may involve taking control of the company.

BVPS
Book Value per Share (BVPS) is calculated as shareholders’ equity divided by the number of outstanding shares. It represents the accounting value of a company’s equity attributable to each share.

CAGR
CAGR (Compound Annual Growth Rate) describes the average annual growth rate of an investment over a given period, assuming that profits are reinvested each year.

Call Option
A call option gives the holder the right, but not the obligation, to buy the underlying asset from the option writer at an agreed exercise price on or before a specified date. If the current market price is above the exercise price, the holder can buy the underlying more cheaply and realises a gain. If the market price is below the exercise price, the holder will not exercise the option and it expires worthless.

Cap
A cap is an upper limit, for example on fees, interest rates or other contractual parameters.

Capex (Capital Expenditure)
Capital expenditure (capex) refers to spending on long-term assets such as new equipment, machinery, buildings or other fixed assets that are used in the business over several years.

Capital Compounding Potential
Capital compounding potential describes a company’s ability to create long-term wealth for its shareholders. Typical financial characteristics of “compounders” include: (a) sustainably high return on invested capital (ROIC), (b) a high share of recurring revenues, (c) strong gross margins, and (d) low capital intensity. This combination should lead to robust free cash flows that can either be reinvested at attractive returns or distributed to shareholders.

Capital Management Company
A capital management company is an entity that collects capital from investors in return for fund units or certificates and invests this capital in its own name for the account of the investors. In Germany, KVG is the current regulatory term; the older term KAG (Kapitalanlagegesellschaft) has effectively been replaced.

Carbon Bubble
The carbon bubble refers to the risk that assets such as fossil fuel reserves are overvalued and could suffer substantial losses in value as a result of regulation or the transition to a low-carbon economy. It represents a potential risk for investors exposed to such assets.

Carbon Footprint / CO₂ Footprint
The carbon footprint measures the total amount of greenhouse gas emissions caused by an activity, product or organisation. Emissions are expressed in tonnes of CO₂ equivalents (CO₂e) to make the climate impact of different greenhouse gases comparable. The footprint includes both direct and indirect emissions across the entire life cycle and is used as an indicator to assess climate impact and to develop targeted emission reduction measures.

Carbon Neutral / CO₂ Neutrality
Carbon neutral describes a state in which the amount of CO₂ emitted is balanced by measures such as offsetting or carbon sinks. Emissions can be compensated outside the direct value chain without necessarily reducing them at source. The objective is to achieve net zero CO₂ emissions.

Cash Flow
Cash flow describes the flow of cash into and out of a company or portfolio. Net cash flow (NCF) is the surplus (positive NCF) or deficit (negative NCF) of cash inflows over cash outflows during a given period.

Cash Flow Analysis
Cash flow analysis aims at assessing the long-term development and sustainability of assets and obligations. Typically, expected long-term cash inflows are compared with expected cash outflows to evaluate the financial capacity and viability of an asset base or business model.

Circular Economy
The circular economy is an economic model that seeks to keep resources in use for as long as possible through reuse, repair and recycling, thereby minimising waste. Product design already focuses on durability and recyclability. The goal is to reduce resource use, lower emissions and promote a more sustainable use of materials, replacing the traditional linear “take–make–waste” model with a regenerative approach.

Climate Bonds Initiative (CBI)
The Climate Bonds Initiative (CBI) is an international non-profit organisation that aims to mobilise global capital for climate action. It develops standards and certification schemes for green bonds and promotes investment in climate-friendly projects such as renewable energy, sustainable infrastructure and other low-carbon solutions, with the goal of accelerating the transition to a climate-resilient, low-carbon economy.

Climate Neutrality
Climate neutrality describes a state in which greenhouse gas emissions are fully balanced by avoidance, reduction and/or offsetting measures. In contrast to “net zero”, the focus is primarily on balancing remaining emissions, not necessarily on deep, absolute emission reductions across the entire value chain. Climate neutrality can therefore be achieved more quickly, but does not by itself imply comprehensive decarbonisation.

Climate Risks
Climate risks are financial risks arising from climate change and are typically divided into:

Physical risks: Direct impacts such as extreme weather events, flooding or rising sea levels that can damage assets, disrupt operations or impair infrastructure.
Transition risks: Risks associated with the transition to a low-carbon economy, such as new regulations, technological changes, carbon pricing or shifting market preferences.
Both types of risk can significantly affect companies, markets and investments.

Co-investment
Co-investments are direct investments made by investors alongside a fund in a specific company or project, usually on the same terms as the lead fund, but often with reduced fees.

CO₂ and CO₂ Equivalents (CO₂e)
CO₂ (carbon dioxide) is a greenhouse gas released through natural processes and human activities such as the burning of fossil fuels. CO₂ equivalents (CO₂e) are a unit of measurement that expresses the climate impact of different greenhouse gases in terms of the amount of CO₂ that would cause the same level of global warming, based on their global warming potential (GWP).

CO₂ Offsetting / Carbon Offsetting
CO₂ offsetting refers to measures designed to compensate for unavoidable greenhouse gas emissions. This is done by investing in climate projects that avoid emissions or remove CO₂ from the atmosphere, for example through reforestation or the expansion of renewable energy. Offsetting is often implemented via carbon credits that represent a specified amount of avoided or removed emissions.

Commodity
Commodities are tradable raw materials such as oil, gold or wheat that are bought and sold on specialised exchanges.

Composite
A composite is an aggregation of all existing discretionary portfolios managed in accordance with a comparable investment mandate, investment objective or investment strategy. Composites are often used in performance presentation and GIPS reporting.

Concentrated Portfolio
A concentrated portfolio holds a relatively small number of securities. In contrast to broadly diversified portfolios, which may contain a large number of holdings to reduce risk, the FERI Global Quality equity strategy typically invests in 25–40 stocks (global high-conviction ideas), compared with around 1,600 constituents in the MSCI World Index.

Conference of the Parties (COP)
The Conference of the Parties (COP) is the supreme decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC). It brings together representatives of all signatory states, usually on an annual basis, to review progress in achieving international climate goals and to negotiate measures against climate change. A central focus is the implementation of the Paris Agreement.

Convexity
Convexity is a measure that describes the curvature of the relationship between a bond’s price and interest rates. It is used to assess how sensitive a bond’s price is to changes in yields, beyond what is captured by duration. Higher convexity means that price gains when yields fall are larger than price losses when yields rise by the same amount, which is favourable for the bondholder.

Core
Core is a classification used to describe the risk–return profile of an investment. Core investments are typically characterised by stable cash flows, lower risk and moderate return expectations. Other common categories include Core Plus, Value-Added and Opportunistic, particularly in asset classes such as infrastructure and real estate.

Core Plus (Core+)
Core Plus is a classification for investments with a slightly higher risk–return profile than Core. Core-plus investments often involve stable assets with additional value-enhancement potential, for example through active management or moderate development activities. Other categories include Core, Value-Added and Opportunistic.

Corporate Carbon Footprint
The corporate carbon footprint (CCF) captures the total greenhouse gas emissions that a company causes directly and indirectly. It includes direct emissions from own facilities and vehicles (Scope 1), indirect emissions from purchased energy (Scope 2) and other indirect emissions along the value chain, such as supply chains, business travel or the use and disposal of products (Scope 3).

Corporate Governance
Corporate governance refers to the legal and factual framework for the management and supervision of a company. It encompasses structures, processes and rules that aim to ensure responsible, transparent and sustainable corporate management in the interests of shareholders and other stakeholders.

Corporate Sustainability Due Diligence Directive (CSDDD)
The Corporate Sustainability Due Diligence Directive (CSDDD) is an EU directive that requires companies to respect human rights and environmental due diligence obligations throughout their value chains. Companies must identify, prevent and address risks such as human rights violations or environmental harm in their own operations and in their supply chains.

Corporate Sustainability Reporting Directive (CSRD)
The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that obliges companies to prepare comprehensive, extended and standardised sustainability reports. Its aim is to provide investors and other stakeholders with comparable and transparent information on companies’ sustainability performance.

Correlation
Correlation measures the strength and direction of a linear relationship between two variables. A correlation close to +1 indicates a strong positive relationship, a value close to −1 a strong negative relationship, and a value around 0 indicates little or no linear relationship.

Counterparty Risk
Counterparty risk is the risk that a professional market participant fails to meet its obligations. In addition to traditional credit risk – for example from money market transactions – it includes default risks arising from derivative positions or from the settlement of financial transactions.

Covariance
Covariance is a statistical measure that indicates how two variables move in relation to each other. A positive covariance means that the variables tend to move in the same direction, while a negative covariance indicates they move in opposite directions. Correlation is the normalised form of covariance.

Credit Risk
Credit risk is the risk that a borrower fails to meet its obligations in full or on time – for example, by not repaying a loan or only partially repaying it. For lenders and investors, credit risk is a key component in pricing loans and bonds and in determining required risk premiums.

CSR (Corporate Social Responsibility)
Corporate Social Responsibility is a concept of corporate responsibility under which companies take responsibility for their impact on society, including economic, social and environmental aspects, beyond mere compliance with legal requirements.

DCF
Discounted Cash Flow (DCF) is an investment valuation method used to determine the value of projects, real estate or companies. It is based on the financial concept of discounting future cash flows back to their present value.

DDM
The Dividend Discount Model (DDM) is a valuation method for equities that derives the value of a share from the present value of all expected future dividend payments.

Debt / Capital
The debt-to-capital ratio is a measure of a company’s leverage. It is calculated by dividing the company’s interest-bearing debt (short- and long-term liabilities) by total capital. Total capital comprises all interest-bearing debt plus shareholders’ equity.

Decarbonisation
Decarbonisation describes the process of reducing CO₂ emissions by shifting from fossil fuels to renewable energy sources and by introducing low-emission technologies.

Degree of Coverage
The capital coverage ratio indicates to what extent fixed assets are financed by equity. Long-term assets should be financed with long-term capital.

Coverage ratio I
Compares fixed assets with equity only and can therefore be below 100% (target range approx. 70–100%).
Coverage ratio II
Includes both equity and long-term debt and should be clearly above 100% (target range approx. 110–150%).

Derivative
A derivative is a contract or forward transaction between two parties that is based on an underlying asset. It grants (and in some cases obliges) one or both parties to buy (call) or sell (put) the underlying at a specified price at a future date or within a specified future period. The derivative itself is traded independently of the physical underlying.

Developed Markets
Developed markets are economically and technologically advanced countries with a high level of industrialisation, stable institutions and well-developed financial markets.

Direct Lending
Direct lending refers to loans provided to companies by non-bank lenders (such as debt funds or institutional investors) without intermediaries such as investment banks, brokers or traditional commercial banks.

Disruption
Disruption describes a process in which an entire market or industry is fundamentally transformed or displaced by a rapidly growing innovation, for example through new technologies or business models.

Distressed Debt
Distressed debt refers to the debt securities of companies or issuers that are in financial distress, have a high risk of default or are already in restructuring or insolvency proceedings. Such securities typically trade at a significant discount to their nominal value.

Diversifikation
Diversification is the spread of investment capital across different asset classes, regions, sectors or securities in order to control risk. The objective is to limit potential losses by avoiding excessive concentration in individual positions.

Do No Significant Harm – Test (DNSH-Test)
The Do No Significant Harm (DNSH) Test is an assessment framework used under the EU Taxonomy to ensure that economic activities classified as environmentally sustainable do not cause significant harm to any of the six environmental objectives: climate change mitigation, climate change adaptation, sustainable use of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. Passing the DNSH test is essential for an activity to qualify as environmentally sustainable under the Taxonomy Regulation.

Downside Volatility
Downside volatility measures the variability of negative deviations from a reference value (e.g. an average return or target). Positive deviations are not taken into account. It therefore focuses specifically on downside risk.

DPS
Dividends per share (DPS) is the total amount of dividends paid by a company over a given period, usually one year, divided by the number of shares outstanding. It expresses how much dividend is attributable to each individual share.

Drawdown
Drawdown is the decline from the highest value to the lowest value of an investment or fund over a specific historical period, usually expressed as a percentage. It indicates the maximum loss that an investor would have experienced during that period.

Due Diligence
Due diligence is the thorough examination and analysis of a company, particularly with regard to its economic, legal, tax and financial circumstances. It is typically carried out by a potential buyer or investor as part of an acquisition or investment process.

Duration
Duration is a sensitivity measure that indicates the average time it takes for an investor to recover the capital invested in a fixed-income security through its cash flows. More generally, it is the weighted average of the times at which the investor receives payments from the security and is used to assess interest rate risk.

DVD y
The dividend yield is the ratio of the dividend per share to the share price, expressed as a percentage: Dividend yield = (Dividend per share / Share price) × 100%. It is one of the classic indicators used to evaluate an equity’s income component.

EBIT Margin
EBIT stands for Earnings Before Interest and Taxes and represents a company’s operating profit. The EBIT margin is obtained by relating EBIT to a company’s total revenue. It is an important indicator for assessing a company’s operating profitability.

ECB Deposit Facility Rate
The ECB Deposit Facility Rate is one of the three key interest rates of the European Central Bank. It is the rate at which commercial banks can deposit excess liquidity with the ECB overnight.

Emissions
Emissions refer to the release of pollutants into the environment, in particular greenhouse gases such as CO₂. They are caused by human activities such as power generation, transport or industrial processes and are a major driver of climate change. To better capture origin and type of emissions, they are typically classified into three categories: Scope 1, Scope 2 and Scope 3 emissions.

Enhanced Mobile Broad Band
Enhanced Mobile Broadband (eMBB) is one of the three key application scenarios defined for 5G. As an enhancement of existing 4G broadband services, it enables data-intensive use cases that require very high data rates over a wide coverage area.

EPS
Earnings per Share (EPS) is a metric used to assess a company’s profitability. It is calculated by dividing the net profit for a given period by the number of shares outstanding. EPS shows how much profit (or loss) is attributable to each share and allows performance to be compared over time.

Equity Index / Stock Index
An equity index is a metric that tracks the overall performance of a group of stocks over time. It is used as a benchmark for markets or segments. An example for the German equity market is the DAX (Deutscher Aktienindex), which represents the largest listed German companies.

ESG Criteria
ESG stands for Environmental, Social and Governance. ESG criteria are used to assess how companies and financial market participants take environmental and social aspects, as well as corporate governance practices, into account in their decision-making and business activities. They are widely used in investment analysis and sustainable finance.

ESRS (European Sustainability Reporting Standards)
The European Sustainability Reporting Standards (ESRS) are binding EU standards that specify detailed requirements for sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD). They aim to ensure transparency and comparability of sustainability information disclosed by companies.

EU Green Bond Standard (EU GBS)
The EU Green Bond Standard (EU GBS) is a voluntary standard developed by the European Union for green bonds. It requires that the proceeds of such bonds are fully allocated to projects that are aligned with the environmental objectives of the EU Taxonomy. The aim is to enhance transparency and credibility in the market for green bonds.

EU Green Deal
The EU Green Deal is a comprehensive policy package of the European Union aimed at transforming the EU economy to become sustainable and climate-neutral by 2050. It combines climate protection, environmental policy, social justice and economic growth, and covers areas such as energy, transport, industry, agriculture and finance.

Euribor
Euribor is the Euro Interbank Offered Rate – the average interest rate at which eurozone banks are willing to lend unsecured funds to one another in the interbank market for various maturities.

EU-Taxonomie
The EU Taxonomy is a classification system for environmentally sustainable economic activities. It defines six environmental objectives, including climate change mitigation, climate change adaptation and the protection of biodiversity, and serves as a basis for sustainable investments and regulatory disclosure requirements. Its goal is to increase transparency and channel capital towards sustainable projects.

EV/EBIT
The EV/EBIT multiple is a valuation metric used to assess the value of a company. Enterprise Value (EV) measures the value of a company as the sum of its equity and interest-bearing debt, minus cash and cash equivalents. EBIT (Earnings Before Interest and Taxes) represents operating profit. A lower EV/EBIT ratio may indicate a more attractively valued company, but the metric gains real significance only when compared across companies within a peer group.

Event-driven Strategy
An event-driven strategy is a hedge fund or investment strategy that seeks to profit from specific corporate events, such as mergers, acquisitions, restructurings or spin-offs. The focus is on identifying pricing inefficiencies related to such events.

Exchange Traded Fund (ETF)
An Exchange Traded Fund (ETF) is a type of investment fund that typically aims to replicate the performance of an index passively. ETFs are traded on stock exchanges like individual shares. In contrast, actively managed funds seek to outperform their benchmark and are usually subscribed and redeemed via the fund management company.

Equity Participation Capital
Equity participation capital is equity provided by external investors such as private equity firms, venture capital funds or private individuals. It grants an ownership stake in a company rather than a fixed claim like debt.

Exclusion Criteria under the FERI Minimum Guideline
The exclusion criteria under the FERI minimum guideline define clear standards for investments in order to uphold ethical and sustainable principles. They exclude companies involved in particularly controversial or harmful business activities. Specifically, this applies to:

Controversial weapons: Companies involved in the manufacture or distribution of cluster munitions, anti-personnel mines or similar weapons.
Nuclear weapons: Companies involved in the production or trade of nuclear weapons.
Thermal coal: Companies that generate more than 10% of their revenues from thermal coal due to its high CO₂ intensity.
Tobacco: Manufacturers or traders of tobacco products as well as companies that generate significant revenues in this area.

In addition, companies that seriously violate internationally recognised norms – such as the principles of the UN Global Compact, the OECD Guidelines for Multinational Enterprises or the core labour standards of the International Labour Organization (ILO) – are excluded.

Factor Investments
By investing in factors such as size, value, quality, momentum or dividend yield, investors aim to generate long-term excess returns compared with traditional indices (e.g. the equity index MSCI World).

Family Governance
Family governance refers to structures and rules that guide the responsible management and control of family-owned businesses and the owning family. A family governance code – such as the German Governance Code for Family Businesses (GKFU) – typically provides recommendations on how to design decision-making processes, safeguard cohesion within the family and ensure the long-term stability of the family business.

FCFy
Free cash flow yield (FCFy) relates free cash flow per share to the market price per share. It is used both as a financial metric and a valuation metric. A higher FCFy can indicate that a company is generating strong free cash flows relative to its valuation.

Federal Funds Rate
The Federal Funds Rate is the key policy rate set by the US Federal Reserve (Fed). It is the interest rate at which US banks lend excess reserves to each other overnight.

FERI ESG Methodology
The FERI ESG Methodology is a comprehensive assessment framework used to analyse the sustainability performance of companies and issuers. It combines multiple screening and evaluation steps to assess environmental, social and governance (ESG) characteristics. The objective is to identify issuers that comply with global norms, have a positive ESG profile or are on a clear improvement path. The methodology provides the basis for the evaluation of sustainable investments.

FERI ESG Risk Score
The FERI ESG Risk Score measures the sustainability risk of companies and issuers using a proprietary risk model. It evaluates more than 150 data points from various ESG data providers and weights them according to their materiality. The aim is to identify issuers with elevated sustainability risks, especially those without adequate risk management strategies. The score helps to detect potential risks at an early stage and supports informed investment decisions.

FERI SDG Score
The FERI SDG Score is designed to identify sustainable investments and is based on a five-stage assessment process. It comprises two layers: a risk assessment, which includes regulatory requirements such as the Do No Significant Harm (DNSH) test and the FERI ESG Score, and an impact assessment, which analyses contributions to the 17 UN Sustainable Development Goals (SDGs). Only investments that successfully pass all stages are classified as sustainable. The final SDG score is expressed in binary form as “aligned” or “not aligned”.

Fit-for-55 Package
The Fit-for-55 Package is a legislative package of the European Union aimed at implementing the European Green Deal. Its main goal is to reduce greenhouse gas emissions by at least 55% by 2030 compared with 1990 levels and to put Europe on track to climate neutrality by 2050. It includes reforms of emissions trading and regulations covering energy, transport and industry, designed to support the EU’s climate targets and sustainable investment.

Fixed Assets
Assets of a company that are intended to be used on a long-term basis in the business operations.

Fixed Income
Fixed income is a broad term for debt securities that pay a fixed or predictable rate of interest over their life, such as government or corporate bonds. Fixed-income investments are generally regarded as more conservative, as the risk of interest payment default is typically lower than the risk associated with equities.

FoF, Fund of Funds
A fund of funds (FoF) is an investment fund that invests in a portfolio of other funds rather than directly in individual securities. This structure can provide broad diversification across asset classes, regions or strategies.

Fokussiertes Portfolio
A focused portfolio holds a relatively small number of securities. In contrast to highly diversified portfolios that invest in many different holdings to spread risk, the FERI Sustainable Quality equity strategy typically invests in 25–40 stocks (global high-conviction ideas), compared with around 1,600 constituents in the MSCI World Index.

Forward
Forwards are over-the-counter (OTC) derivative contracts and belong to the group of unconditional forward transactions. A forward is an agreement to buy or sell an asset at a specified price on a specified future date. Forwards are the non-exchange-traded counterpart to futures.

Forward Transaction (Derivatives Contract)
In a forward transaction, unlike in standard spot transactions, the purchase or sale, the contract agreement, and the settlement occur at different points in time.

Free Cash Flow
Free cash flow represents the cash generated by a company during a period that is not needed for operating activities or capital expenditures. It is the amount of cash that remains available to the company after all expenses and investments, and can be used, for example, for debt repayment, dividends or share buybacks.

Freedom House Index (FHI)
Freedom House, a non-governmental organisation based in Washington, D.C., has published the annual report “Freedom in the World” since 1973. The report analyses and assesses the state of political rights and civil liberties in countries and disputed territories around the world. Each country or territory is classified as “Free”, “Partly Free” or “Not Free”.

Fundraising
In a private markets context, fundraising is the process by which fund managers (General Partners, GPs) raise capital from investors (Limited Partners, LPs) for a new fund.

Future
A future is a standardised, exchange-traded derivative contract and the exchange-traded counterpart to a forward. Futures specify standard contract terms such as contract size and settlement dates and obligate both parties to buy or sell the underlying asset at the agreed price on the due date.

Gartner Hype Cycles
Gartner is a market research and advisory firm specialising in developments in the IT sector. To visualise its market analyses, Gartner uses so-called Hype Cycles and Magic Quadrants.

Hype Cycles illustrate the phases of public attention that a new technology passes through during its introduction.
Magic Quadrants show how specific providers are positioned in a given market according to Gartner’s criteria, in one of four quadrants: Leaders, Visionaries, Challengers and Niche Players. Gartner typically analyses a wide range of IT markets on an annual basis.

GICS (Global Industry Classification Standard)
The Global Industry Classification Standard (GICS) is a system for classifying companies and assigning them to specific sectors. In total, GICS divides the global equity market into eleven sectors. Major indices such as the MSCI World or the S&P 500 are constructed using this sector classification.

GIPS
The Global Investment Performance Standards (GIPS®) are a globally recognised set of standards for calculating and presenting investment performance, particularly in institutional asset management. Compliance with GIPS® is considered a “passport” that allows asset managers to compete on a level playing field in the global marketplace.

Global Macro Strategies
Global macro strategies seek to profit from macroeconomic trends and market developments, for example by taking positions for or against currencies, interest rates, stock indices or commodities. Managers conduct economic analysis and monitor political and social developments in order to anticipate market movements. Global macro strategies do not have a uniform risk profile and can range from conservative to highly aggressive.

Global Quality Portfolio
A single-stock equity strategy that invests in a selection of very solid companies worldwide. The portfolio focuses on businesses that are expected to withstand systemic economic and financial crises and thus protect wealth effectively in times of stress – even if this involves higher short-term volatility and drawdowns.

Global Warming
Global warming refers to the long-term increase in the average temperature of the Earth’s near-surface atmosphere and oceans since the beginning of industrialisation, primarily driven by rising greenhouse gas concentrations.

Government Bonds
Government bonds are debt securities issued by national governments to raise capital. Investors lend money to the state and receive regular interest payments and, at maturity, repayment of the principal amount.

Green Bonds
Green bonds are bonds whose proceeds are used exclusively to finance projects with positive environmental or climate impacts. Typical use-of-proceeds categories include renewable energy, energy-efficient technologies, low-carbon transport and environmentally friendly infrastructure. To ensure that funds genuinely support environmental objectives, green bonds often follow established standards such as the Green Bond Principles or the EU Green Bond Standard.

Greenfield
Greenfield refers to an asset or infrastructure project that does not yet exist and must be designed and constructed from scratch. Investors finance the planning and construction of the infrastructure asset as well as its maintenance once it is operational.

Greenwashing
Greenwashing describes attempts by companies or organisations to present themselves as environmentally friendly through misleading or exaggerated claims, without implementing substantive or credible sustainability measures.

Gross Margin
Gross margin relates gross profit (revenue minus cost of goods sold) to revenue and is expressed as a percentage. It indicates how much of each unit of revenue remains after production costs and provides insight into how changes in sales volumes may affect a company’s profitability.

ICMA Principles
The ICMA Principles, developed by the International Capital Market Association, are voluntary guidelines for the issuance of bonds that pursue environmental or social objectives. They promote transparency, disclosure and integrity in the market for sustainable financial instruments. The best-known standards are the Green Bond Principles (GBP) and the Social Bond Principles (SBP), which provide clear guidance on use of proceeds, project evaluation, management of proceeds and reporting. Their aim is to enable investors to make a well-informed assessment of sustainable bonds.

ILO Labour Standards
The International Labour Organization (ILO) is a specialised agency of the United Nations. Its core mandate is to formulate and promote international labour and social standards, to shape globalisation in a socially fair way and to foster decent work as a key prerequisite for poverty reduction.

Impact (Investing)
Impact investing refers to investments that intentionally seek to generate positive, measurable social and/or environmental impact alongside a financial return. Impact investments are typically made in companies, organisations or funds with the explicit objective of achieving both impact and financial performance.

Index (Price Index)
A price index is an indicator of the price development of a selected basket of securities. For an equity price index, it reflects only price changes of the constituents; dividends and other distributions are not included. For example, the DAX price index measures the price performance of the 40 largest listed German companies without reinvesting dividends.

Industry Association Target Market Concept (Verbändekonzept)
The industry association concept is a guideline for determining the target market under MiFID II, ensuring that financial products are distributed only to appropriate client groups. It defines uniform criteria for product design and distribution, including the consideration of sustainability objectives and ESG factors.

Industry Classification Benchmark
The Industry Classification Benchmark (ICB) is a classification system that groups listed companies according to their primary source of revenue. It structures the equity market into industries and supersectors and is used by many indices and data providers.

Industry Rating
A method for assessing the future viability of an industry. It analyses risk factors that affect all companies within a sector and that individual companies typically cannot influence, rather than focusing on the situation of a single company.

Internal Rate of Return (IRR)
The Internal Rate of Return (IRR) is the discount rate at which the net present value (NPV) of all cash flows from an investment equals zero. It represents the annualised rate of return of an investment with complex future inflows and outflows and is used to compare the relative attractiveness of different investment opportunities.

International Capital Market Association (ICMA)
The International Capital Market Association (ICMA) is a global industry association that develops standards and best practices for international capital markets. It promotes transparency and efficiency and is well known for its Green Bond Principles and Social Bond Principles, which support the issuance of sustainable bonds and contribute to market integrity. ICMA’s broader aim is to foster resilient, well-functioning capital markets and support sustainable economic growth.

Internet of Things
The Internet of Things (IoT) is a collective term for technologies that connect physical and virtual objects within a global information infrastructure. In the IoT, devices and objects – such as sensors, machines or “smart appliances” – communicate and cooperate using information and communication technologies. The spectrum ranges from simple RFID tags to fully fledged microcomputers, enabling applications such as smart homes, connected cars and industrial automation.

Investment Grade
Investment grade refers to bonds and issuers with good to very good credit quality. Rating agencies assign investment-grade ratings to issuers that are considered to have a relatively low risk of default (for example BBB–/Baa3 or better).

Investment Ratio / Investment Level
The investment ratio indicates the proportion of a given asset base that is invested in financial or real assets. In the context of investment funds, it usually refers to fund assets minus the cash position; it shows what share of the fund is actually invested in the market.

IPO
An Initial Public Offering (IPO) is the first time a company offers its shares to the public on a stock exchange. Through the IPO, the company gains access to capital markets, and its shares become tradable for a broad range of investors.

Labelled Bonds
Labelled bonds are bonds that carry specific labels such as Green Bond, Social Bond or Sustainability Bond. These labels indicate that the proceeds are earmarked for particular types of projects:

Green Bonds finance exclusively environmental projects,
Social Bonds finance projects with social benefits,
Sustainability Bonds combine environmental and social objectives.
Use of proceeds is typically aligned with established standards such as the Green Bond Principles (GBP) or Social Bond Principles (SBP) to ensure transparency and credibility for investors.

Large Cap
Large caps are shares of companies with a large market capitalisation. In stock market jargon, companies are often grouped into:

Large Caps – large companies,
Mid Caps – mid-sized companies,
Small Caps – smaller companies.
The exact thresholds vary by market, but large caps usually include the largest, most established listed companies.

Lending Limit / Loan-to-Value Limit
The maximum value up to which a bank accepts a collateral asset (e.g. a property) as security for a loan. The lending limit is derived from the mortgage lending value of the collateral, reduced by a haircut to account for, for example, realisation and market risks.

Leverage
Leverage describes situations in which relatively small changes in one variable lead to disproportionately large changes in the final result. In finance, leverage usually refers to the use of borrowed capital or derivatives to increase the exposure of an investment. While leverage can amplify returns, it also increases the potential for losses.

Liquid Alternatives
Liquid alternatives are investment strategies that use alternative approaches (e.g. hedge-fund-like strategies) but are implemented via regulated, liquid investment vehicles such as UCITS funds. They aim to generate positive returns in different market environments while offering daily or frequent liquidity, in contrast to traditional, less liquid alternative investments.

LkSG (German Supply Chain Due Diligence Act)
The German Supply Chain Due Diligence Act (LkSG) requires certain companies in Germany to observe human rights and environmental due diligence obligations throughout their supply chains. Companies must identify, prevent and mitigate risks such as child labour, forced labour, human rights violations and environmentally driven harm, both in their own operations and at key suppliers.

Long Term
The investment horizon is the length of time over which an investment is held before it is sold or liquidated. It can range from seconds for day traders to decades for buy-and-hold investors or pension savers.
In the context of FERI Global Quality, “long term” refers to an indefinite holding period that is typically longer than 5 years.

Long/Short Strategies
Long/short strategies take both long positions (benefiting from rising prices) and short positions (benefiting from falling prices):

A long position profits when the value of a security increases.
A short position profits when the value of a security decreases.
By combining longs and shorts, managers can express relative views (e.g. one stock versus another) and manage market exposure more flexibly than in purely long-only strategies.

Manage-to-Core
Properties with excellent occupancy rates, stable returns, and manageable investment requirements.

Market Capitalization / Market Cap
Indicates the current market value of a company. Market capitalization is calculated by multiplying the share price by the total number of issued shares of the company.

Market Beta
Market beta indicates how much a financial instrument fluctuates compared to the market. A value of 1.0 means the instrument fluctuates in line with the market average. A value below 1.0 indicates lower volatility, while a value above 1.0 indicates higher volatility than the average. A negative beta means the asset’s returns move inversely to the overall market.

Market Exposure
Market risk. The investment’s value can rise or fall due to fluctuations in interest rates, exchange rates, or credit ratings.

Max Drawdown
A drawdown represents the loss between a peak and the subsequent trough within a given period. There can be multiple drawdowns within one period. Maximum drawdown is the largest cumulative loss that could occur during a period if an investor had been invested at the peak.

Mezzanine
A mezzanine loan or mezzanine financing refers to a hybrid capital structure positioned between senior debt and equity. The term originates from the Italian word mezzo, meaning “middle.” Mezzanine financing combines characteristics of both equity and debt and is often used to bridge financing gaps.

Microfinance
Microfinance refers to organizations that provide basic financial services such as loans, savings accounts, or insurance to clients who are typically excluded from conventional banking. Microfinance is an important tool in development policy.

Mission Critical Control
5G will set new standards for mission-critical applications in sectors such as healthcare and finance.

Momentum
Measures the strength of an upward or downward movement over a period. Investing in companies with strong upward momentum is considered a factor-based investment strategy.

Mortgage Lending Value
The value of loan collateral that can, with a high degree of probability, be realised over the long term. The mortgage lending value is intended to exclude cyclical or speculative price components.

OECD Guidelines for Multinational Enterprises (OECD Guideline)
The OECD Guidelines for Multinational Enterprises are recommendations from the 34 OECD member countries and 8 additional states to companies operating internationally. They outline expectations for corporate conduct in areas such as labor relations, environmental protection, anti-corruption, and consumer rights. Alongside the ILO Core Labor Standards and the UN Global Compact, they are among the most important instruments for promoting responsible corporate governance worldwide.

Offshore Funds
Offshore funds are domiciled in countries without specific investment legislation, allowing them to avoid standard regulatory requirements. These jurisdictions often also provide tax advantages. Typical offshore locations include the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Hong Kong, Isle of Man, Jersey, Liechtenstein, Mauritius, the Netherlands, the Netherlands Antilles, New Zealand, Taiwan, and Panama. Many hedge funds are based in the British Virgin Islands, Cayman Islands, or Bermuda.

Operating Margin
Operating margin is the ratio of operating income over the last twelve months to net sales.

Opportunistic
The Opportunistic investment style is the riskiest among real estate strategies and involves investments with the highest potential return and risk. Significant upfront investment in the property is required, with the goal of selling it afterward. Returns are derived almost entirely from capital appreciation realized at sale, rather than ongoing income. Return volatility is significantly higher, but this also allows for disproportionate capital gains.

Option
An option is a conditional derivative contract that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a specified underlying asset.

Out of the Money (OTM)
An option without intrinsic value. A call option is out of the money when the underlying asset’s price is below the strike price. Conversely, a put option is out of the money when the underlying asset’s price is above the strike price.

Outperformance
Outperformance refers to a security, fund, or portfolio achieving a higher return over a given period compared to its benchmark or reference value.

P/B (Price-to-Book Ratio)
The Price-to-Book Ratio (P/B or P/BV) is a balance-sheet-based valuation metric used to assess the market valuation of a publicly listed company. It compares a stock’s market price with its book value per share—that is, the equity attributable to shareholders.

P/B Ratio – Price-to-Book Ratio
The price-to-book ratio (P/B or P/BV) is a valuation metric that compares a company’s share price with its book value per share (shareholders’ equity attributable to each share). It provides a substance-oriented view of valuation: a low P/B ratio may indicate that the company is trading close to or below the accounting value of its equity.

P/E Ratio (Price-to-Earnings Ratio)
The Price-to-Earnings Ratio (P/E or PER) is a widely used metric for evaluating stocks. It compares a company’s share price to its earnings per share (EPS) for a given or expected period.

P/E Ratio – Price/Earnings Ratio
The price/earnings ratio (P/E) is one of the most widely used metrics for evaluating equities. It is calculated by dividing the current share price by the earnings per share for a given period, often based on forward earnings estimates. A lower P/E may suggest a more attractive valuation, but the ratio is best interpreted in comparison with peers or the company’s own history.

P/Sales (Price-to-Sales Ratio)
The Price-to-Sales Ratio is an important valuation and analytical indicator for investors and analysts. It shows how much investors are willing to pay per dollar of revenue. As with other valuation metrics, it is most meaningful when comparing companies within the same industry. A low ratio may indicate that a stock is undervalued, while a significantly above-average ratio may suggest overvaluation.

Par Bonds
A par bond is a bond that trades at par value. When a bond is issued at its nominal (face) value, it is—at issuance—a par bond. Because market prices fluctuate, a bond trading at par today may trade above or below par tomorrow.

Paris Agreement
The Paris Agreement is an international treaty concluded in 2015 at the UN Climate Conference (COP21). Its primary goal is to limit global warming to well below 2°C, ideally to 1.5°C above pre-industrial levels. It obligates signatory states to develop national climate action plans and regularly review their progress.

Peer Group Analysis
A peer group refers to a group of individuals with shared interests, age, background, or social status, characterized by reciprocal relationships. Individuals seek social orientation, while the group serves as a reference point and has its own norms, values, and hierarchies.

PE Timber
Timber investments through private equity funds, typically involving forests or timber assets, aimed at generating returns from wood sales or long-term value appreciation.

PMI (Purchasing Managers’ Index)
The Purchasing Managers’ Index (PMI), also known as the ISM Manufacturing Index, is the most important and reliable leading indicator of economic activity in the United States.

Portable Alpha
Portable Alpha is an investment strategy in which alpha (excess return) is generated from an independent source and overlaid onto a separate beta exposure to the market.

Principal Adverse Impacts (PAI)
Principal Adverse Impacts (PAI) refer to significant negative effects of investment decisions on sustainability factors such as environmental, social, and governance (ESG) issues. Under the Sustainable Finance Disclosure Regulation (SFDR), financial market participants must measure and disclose these impacts, including indicators such as greenhouse-gas emissions, biodiversity loss, social inequalities, and human-rights violations. The goal is to increase transparency, minimize risks, and promote sustainable financial practices.

Principles for Responsible Investment (UN PRI)
The Principles for Responsible Investment (UN PRI), launched in 2006 by the United Nations, offer investors six voluntary principles for integrating ESG factors into investment decisions. The initiative aims to promote sustainable and responsible investment practices and support a global financial system that fosters long-term environmental and social stability. The principles include incorporating ESG factors in analysis and decision-making, active ownership, and reporting on progress.

Private Debt
Privately issued debt instruments that are not publicly traded. These may take the form of notes or loans.

Private Equity
Private equity refers to privately held equity investments in companies. These holdings are not publicly traded. Investors are typically locked in for longer periods and bear higher risk accordingly.

Private Markets
Private Markets comprise a broad range of investments and assets that are not listed on a public exchange and therefore cannot be traded openly.

Pull-to-Par Effect
The pull-to-par effect describes how the price of a bond gradually converges toward its face value as it approaches maturity. At maturity, the bond price should equal its nominal value.

Put Option
A put option gives the holder the right, but not the obligation, to sell an underlying asset at a predetermined strike price.

Probability of Default
The probability that a claim will not be repaid. Probability of default is usually defined for a one-year time horizon.

Discount Rate Reduction (RZ-Reduktion)
Reduction of the discount rate used to value obligations, especially in insurance and pension contexts. A lower discount rate increases the reserve requirement. Effects are determined through an actuarial report and can be simulated under assumptions in an ALM study.

Rating
Rating refers to the assessment of a borrower’s creditworthiness, usually conducted by rating agencies. The rating estimates the probability that a borrower will default within a specific time period. Ratings can apply to individual bonds or to their issuers.

Real Assets
Real Assets are physical or tangible assets, often in the private equity or real asset space. Examples include real estate, infrastructure, or commodities.

Relative Value
Relative Value is a hedge fund strategy that exploits price differences between related securities. The goal is to generate profits from short-term market inefficiencies. The profit is the difference between the purchase and sale price.

Return
Return is a metric that measures the interest or profit earned on invested capital. It is calculated as the ratio of gain to the invested capital.

Restriction
A limitation or constraint, e.g., imposed by investment guidelines or regulatory requirements.

Risk
Risk refers to the possibility of loss or damage, such as from price declines or economic developments. Risk is commonly measured using metrics such as volatility, value at risk, or drawdown.

Risk/Volatility
A standard measure of market fluctuations. Volatility measures the dispersion of returns around the mean and captures both positive and negative deviations.

Risk Capacity
The ability of a company or investor to absorb financial risks using available resources (e.g., reserves or capital buffers).

Rising Manager
Private equity managers launching their first or second institutional fund (first- or second-generation funds). FERI defines them as “Rising Managers.”

ROA (Return on Assets)
Return on Assets measures the profitability of total assets. It is calculated by dividing profit by the average total assets, reflecting the efficiency of the entire capital employed.

ROE (Return on Equity)
Return on Equity is a key metric for assessing operational performance from the perspective of equity holders. Industry differences, financing structures, and business-specific risks should be considered in comparisons.

ROIC (Return on Invested Capital)
Return on Invested Capital measures a company’s capital efficiency. It relates the profit of a period to the capital invested at the beginning of that period.

SBTi (Science Based Targets initiative)
The Science Based Targets initiative (SBTi) supports companies in developing science-based emissions reduction targets aligned with the goals of the Paris Agreement.

Scopes 1, 2, and 3 – Greenhouse Gas Emissions
Scopes categorize emissions based on their source:

Scope 1 covers direct emissions from sources controlled by the company, such as heating systems or company-owned vehicles.
Scope 2 includes indirect emissions from purchased energy, such as electricity or district heating.
Scope 3 includes all other indirect emissions along the value chain, such as suppliers, business travel, or product use.
This categorization enables transparent analysis of a company’s carbon footprint and is essential for climate-action strategies.

Scoring
Scoring refers to an analytical, statistical method that evaluates risk based on a small set of collected data and historical experience.

Secondaries
Secondaries refer to the purchase or sale of existing interests in ongoing private markets funds.

Security (Securities)
Securities are certificates that represent a private property right, such as claims (bonds) against a company or ownership interests (stocks) in a company.

SFDR (Sustainable Finance Disclosure Regulation)
The Sustainable Finance Disclosure Regulation (SFDR) is an EU regulation requiring financial market participants to provide transparency regarding the sustainability of their products and strategies. Its goal is to direct capital flows toward sustainable investments, prevent greenwashing, and enable informed investor decisions. The SFDR sets disclosure requirements at both the firm and product level, including the consideration of sustainability risks and the classification of funds under ESG criteria (Articles 6, 8, and 9).

Sharpe Ratio
The Sharpe Ratio measures the excess return of an investment over a risk-free asset per unit of risk. It is calculated by dividing the performance difference between an investment and a risk-free asset by the investment’s volatility. A higher Sharpe Ratio indicates a more attractive risk-return relationship.

Smart Beta
Smart beta strategies adjust traditional index weights or apply a rules-based selection of index constituents to capture market inefficiencies in a transparent, systematic way.

Social Bonds
Social bonds are bonds whose proceeds are used exclusively to finance social projects. These projects aim to generate measurable positive social outcomes, such as improved education, healthcare, or affordable housing. They follow the ICMA Social Bond Principles to ensure transparency and social impact.

Socially Responsible Investment (SRI)
An umbrella term for various investment approaches. This includes strict sustainable investment strategies that may evaluate 200–300 ecological, social, and ethical criteria.

Solvency Requirements
In banking, solvency (also called regulatory capital adequacy) refers to a credit institution’s level of own funds (regulatory capital).

(Additional) Sources of Return
In a multi-asset approach, a broader investment universe can generate additional returns that may not be accessible—or only partially accessible—in traditional asset management.

Spread
The spread is the difference between the bid and ask price. It can be quoted in absolute or percentage terms. In the bond market, the spread describes the yield difference between different bonds.

SRI (Socially Responsible Investment)
Socially Responsible Investment (SRI) refers to an investment strategy that combines financial returns with ethical, social, and environmental criteria. Companies that create positive social or environmental impact are favored, while controversial sectors such as weapons or fossil fuels are excluded.

Stock Picking
The targeted selection of individual stocks based on criteria defined by the investor or fund management.

Strategic Asset Allocation (SAA)
Asset allocation refers to distributing a total portfolio across different asset classes (equities, bonds, real estate, commodities, etc.) to optimize return and risk. Strategic asset allocation ensures through regular transactions that the portfolio consistently reflects the desired long-term asset structure.

Strategic Target Ranges (SAA)
Based on the results of an asset-liability analysis, a strategic target portfolio is defined. To facilitate tactical portfolio management, target asset-class weights can be supplemented by ranges (e.g., depending on asset-class volatility).

Strike
The strike is the exercise price of an option at which an index can be sold (put option) or purchased (call option). When viewing sold puts as insurance, the strike represents the index level below which the seller must cover further losses of the policyholder.

Style Box
The Morningstar Style Box helps classify the investment style of funds. It is a matrix with 25 fields (including a core of nine fields) that categorizes funds vertically by market capitalization and horizontally by value- and growth-related characteristics. The investment style is determined by first analyzing each stock individually using five growth and five value factors, then aggregating these results at the portfolio level. Both forward-looking and historical factors are used.

Style Drift
The deviation of an investment fund from its stated investment style or objective due to management decisions.

Sustainable Development Goals (SDGs)
The 17 Sustainable Development Goals are United Nations policy objectives aimed at ensuring sustainable development in economic, social, and environmental dimensions. Modeled after the Millennium Development Goals (MDGs), they took effect on January 1, 2016, with a 15-year horizon (through 2030).

Sustainable Investments (SI)
Sustainable investments (SI) incorporate environmental, social, and corporate-governance considerations.

Sustainable Investments (SFDR)
Sustainable investments under the SFDR are capital allocations aimed at making a substantial contribution to an environmental or social objective. These investments must not have significant adverse impacts on other sustainability goals and must adhere to principles of good corporate governance. They are often assessed using the EU Taxonomy and ESG criteria to ensure transparency and comparability.

Sustainability
Sustainability refers to the use of resources to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. In finance, sustainability involves integrating environmental, social, and corporate governance (ESG) factors into decision-making processes to promote long-term economic stability and positive impacts on society and the environment.

Sustainability Bonds
Sustainability bonds are bonds whose proceeds are used for both environmental and social projects. They combine the principles of green bonds and social bonds to promote broad sustainable development and generate positive environmental and societal outcomes.

Sustainability Indicators
Sustainability indicators are metrics that evaluate the environmental, social, and governance performance of a company or investment. They are used to monitor progress in implementing sustainable practices and to provide transparency. Examples include CO₂ emissions, working conditions, or governance standards. These indicators enable objective assessment and comparability of sustainability performance.

Sustainability-Linked Bonds (SLBs)
Sustainability-linked bonds (SLBs) are bonds whose financial or structural characteristics depend on achieving predefined sustainability targets (Sustainability Performance Targets, SPTs). These targets are measured using specific key performance indicators (KPIs) and reviewed regularly. Unlike green or social bonds, SLB proceeds are not earmarked and may be used for general corporate purposes.

Swap
A swap is a derivative contract in which one party exchanges a variable (or fixed) rate for a fixed (or variable) rate for a specified period in return for a premium.

SWOT Analysis
A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) evaluates an organization’s competitive position by examining internal and external factors.

Synthetic ETF
Also called a swap ETF, this is a type of index replication using synthetic or indirect methods. Replication is achieved through a total return swap, in which the ETF enters into a contract with a financial institution that delivers the index return in exchange for a fee. This structure exposes the ETF to counterparty risk.

Tail-Risk Hedging
Protection against losses resulting from extreme market movements. For example, put options that allow the underlying asset to be sold at a price higher than its fallen market value.

Top-Down
An investment approach in which the analysis of the overall economy, markets, and/or industry conditions is the primary basis for investment decisions. Only afterward is the individual security or company analyzed. It is therefore an analysis “from the top down.” Opposite: bottom-up approach.

Total Expense Ratio (TER)
The Total Expense Ratio represents the total annual cost burden of a fund. It includes all fixed fees such as management fees and custodian bank fees and may also include variable compensation components. Front-end loads or redemption fees are generally not included in the TER.

Total Net Debt / EBITDA
Total Net Debt / EBITDA is the ratio of net liabilities to earnings before interest, taxes, depreciation, and amortization of tangible and intangible assets.

Total Return Swap
A swap agreement in which one party makes predetermined fixed payments to the other party while receiving the total return of an underlying asset (capital gains and dividend/interest payments). The asset is owned by the party receiving the fixed payments.

Tracking Error
Tracking error measures the deviation between a portfolio’s performance and the performance of its benchmark index.

Transformation
In a financial and economic context, transformation refers to the fundamental change of a company’s processes, structures, or strategies in order to adapt to new requirements. This change is driven by technological innovations, market shifts, or regulatory developments and aims to increase efficiency, competitiveness, and long-term viability.

Turnaround
A term used to describe a reversal or recovery, typically toward a positive direction. The goal is to revitalize underperforming companies or businesses facing operational difficulties.

TVPI
Total Value to Paid-In (TVPI) is a key performance indicator for private equity portfolios. TVPI is a point-in-time measure that changes over the course of an investment. This means TVPI reflects the development achieved up to a specific date; it is therefore backward-looking and not a forecast. Ideally, TVPI increases steadily over the lifetime of an investment.

UCITS / OGAW
Undertakings for Collective Investment in Transferable Securities (UCITS) is the international designation for OGAW (Undertakings for Collective Investment in Transferable Securities). These are investment funds that invest in legally defined types of securities and other financial instruments.

Underlying
See underlying asset.

Underperformance
A term describing the situation in which a security, fund, or portfolio has generated a lower return than its benchmark or a relevant comparison value over a given period.

Underlying / Underlying Asset
The underlying (or underlying asset) is the reference instrument on which a financial product is based and which determines its price. Underlyings can be, for example, equities, indices, currencies, commodities, futures contracts or baskets of such instruments.

UN Global Compact
The United Nations Global Compact is the world’s largest and most important initiative for responsible corporate governance. Based on ten universal principles and the Sustainable Development Goals, it pursues the vision of an inclusive and sustainable global economy that benefits all people, communities, and markets, today and in the future. More than 13,000 companies and organizations from civil society, politics, and academia across 161 countries have joined, signaling their commitment to this vision.

United Nations Environment Programme Finance Initiative (UNEP FI)
The UNEP FI is a partnership between the United Nations Environment Programme (UNEP) and the global financial sector. Its objective is to promote sustainable financial practices by supporting financial institutions in integrating environmental and social considerations into their business strategies.

UN Universal Declaration of Human Rights
“Officially the Universal Declaration of Human Rights.”
On December 10, 1948, the United Nations General Assembly adopted the Universal Declaration of Human Rights. It sets out civil, political, economic, social, and cultural rights. Although it does not have the legally binding force of a treaty, it carries substantial political and moral weight. Many human rights laws and treaties established since 1948 are based on this UN declaration.

Use of Proceeds
The term “use of proceeds” refers to the specific, earmarked application of funds raised through bonds or other financing instruments. These funds are used exclusively for clearly defined projects—such as environmental or social initiatives—and are subject to strict transparency and reporting requirements under international standards such as the Green Bond Principles or the Social Bond Principles.

Value-Added (Real Estate)
A higher risk classification compared to Core/Core Plus real estate. These properties are typically in reasonable locations and offer significant potential for optimization, redevelopment, or repositioning, often with relatively high vacancy rates. Value-added properties generally generate cash flow from rental income, though this plays a smaller strategic role compared to Core properties. The objective is to sell the property at a higher price as a Core (Plus) asset after completing the improvement measures (“manage-to-core” strategy), thereby realizing a value-appreciation gain.

Value at Risk (VaR)
Based on the risk-return characteristics of a portfolio and assuming normal, i.e., expected, market conditions, Value at Risk provides an estimate of the maximum potential portfolio loss over a given investment horizon and confidence level. Unexpected extreme losses are not included. → See also example graphic.

Value-Growth Blend
The term “blend” refers to a neutral investment style in which neither value nor growth characteristics dominate. A blend strategy therefore represents a combination of value and growth approaches.

Value Trap Filter
The value trap filter causes extremely positive factor characteristics (for example, very low P/E ratios) to have a negative impact on the assessment of a stock’s attractiveness. This makes the systematic approach more stable in terms of data quality and data dispersion, while also reducing overall fund risk since extreme factor exposures can no longer exert strong influence. This filter has proven particularly effective in reducing volatility during strong risk-off scenarios, such as the 2008/2009 financial crisis.

Venture Capital
Capital provided to new or growing companies with long-term growth potential.

Volatility
Volatility (also referred to as risk or measured as standard deviation) is a risk measure used to assess the degree of fluctuation in security returns, commodity prices, interest rates, or investment fund units over a given period. Higher volatility implies a greater likelihood that returns will deviate significantly from the expected value, such as the forecast return.

Volatility Index (VIX)
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) reflects the expected volatility of the U.S. stock index S&P 500. The VIX is published daily by the CBOE derivatives exchange.

Volatility Premium
The volatility premium results from the difference between implied and realized volatility—the greater the difference, the more attractive the option. The higher the expected (implied) volatility, the more expensive options or hedges become. If the realized volatility turns out to be lower, the seller earns a profit.

Volatility Risk Premium
“To capture the volatility risk premium, the seller of an equity index put option assumes the risk of a declining stock market and rising market volatility. The put buyer thereby obtains insurance against the risk of a market downturn. The put buyer pays an option premium for the purchase of the put. The absolute price of the option is very small compared to the potential loss for the buyer in the event of a market crash, giving the buyer a positively asymmetric payoff profile. For this risk transfer to occur, the put seller must receive compensation through a risk premium with a positive expected value. Because the put buyer seeks to limit loss risks in the event of a market crash, they accept paying this premium. This reflects the buyer’s risk-averse nature and gives rise to the volatility risk premium.”