Investment Glossary

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Large-capitalisation company

a requirement that brokers and investment advisors understand the financial needs and circumstances of a customer before providing investment advice.

Leverage

a corporation whose value is measured by the market capital value of its shares in aggregate, is large. In New Zealand, Telecom and Carter Holt Harvey (among others) are considered large capitalisation companies.

Leveraged

use of various forms of borrowing, or derivative and other hybrid financial engineering in an attempt to increase the rate of return from an investment. One example of leverage is buying securities on margin. While leverage can operate to increase rates of return, it also increases the risk of an investment strategy.

Leveraged buyout (LBO)

being or referring to an investment situation in which borrowed funds are used for the investment.

Limited liability

use of a target company's asset value in order to finance most or all of the debt incurred in acquiring the company. This strategy enables a takeover using little capital; however, it can result in considerably more risk to owners and creditors.

Liquid

the liability of a firm's owners for no more capital than they have invested in the business. Essentially, the legal separation of ownership and liability means that a shareholder can lose no more than he or she has paid for the shares of ownership regardless of the firm's financial obligations. Limited liability is one of the major advantages of organising a business as a corporation.

Liquidate a position

1 - being or designating an asset that may be bought or sold in a short period of time with relatively small price concession or transaction costs. A US Treasury bill is an example of a very liquid asset. 2 - being or pertaining to an investment position in which most of the assets are in cash or near cash. This kind of position generally earns a relatively low return but allows the investor to take advantage of other investment opportunities.

Listed security

to sell all the shares or debt securities of a particular type. For example, a portfolio manager might decide to liquidate a position in a share by selling all the shares of that company held in the portfolio.

Listing requirements

a security traded on any national or regional securities exchange. Listed securities are generally more liquid than securities that trade only in the over-the-counter market. - Also called exchange-traded security.

Load fund

requirements that are made of a firm and the firm's security before the security can be listed for trading on an exchange. Each exchange has its own listing requirements, covering things such as the minimum shares outstanding, the number of shareholders, the earnings history, regular financial reporting and announcements of events which may significantly effect the price of the shares.

Long position

an investment fund with shares sold at a price including a sales charge - typically 1% to 5% of the net amount invested. Thus, load funds are sold at a price exceeding net asset value, but they are redeemed at net asset value. See also application fee.

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