Jargon, "finance-speak" and other barbarisms are not just unpleasant on the ear but can make it harder to convince investors about money-making ideas, a report finds.

As an editor and lover of the English language, it is gratifying to read a report stating that the clunky terms and expressions of modern finance can actually harm the industry. Maybe there is hope yet.

In banking and finance, it appears some terms are so toxic that they are unnecessarily deterring people from making money from hedge funds and other “alternatives”.

As alternatives such as hedge funds, private equity, commodities and real estate continue to draw in money from investors grouching about low-yielding bonds or concerned about volatile stocks, Invesco Consulting has teamed up with a language strategy firm (who knew such organisations even existed?) to consider the expressions that might attract investors to alternatives or repel them.

The study, a year in the making, is called The Power of Alternatives. Invesco worked with Maslansky & Partners to produce the study. One of its findings is that nearly eight in 10 investors (77 per cent) would rather invest in "alternative mutual funds that are bought and sold like any other fund" than "liquid alternatives" (favoured by 23 per cent) – a result showing how terminology can confuse the uninitiated. 

"Investors are very open to hearing about how alternatives can help them meet their goals, but this value proposition is quickly clouded by words like derivatives and arbitrage," Scott West, head of Invesco Consulting, said. "By avoiding jargon, advisors can eliminate misconceptions, improve conversations and help their clients understand how these strategies may enhance their portfolios," he said.

The majority (65 per cent) of the 800 investors surveyed said they are comfortable investing in mutual funds but less than one-quarter were comfortable investing in global macro funds (24 per cent), unconstrained equity funds (23 per cent), hedge funds (20 per cent), arbitrage strategies (19 per cent) and derivatives (17 per cent).

"Advisors should lead with the known and not with the new in helping investors to understand investment strategies," added West. "Our research found that nearly eight in 10 investors would rather invest in alternative mutual funds bought and sold like any other fund than liquid alternatives, yet they are the same thing. This demonstrates that investors do not have a good understanding of liquid alternatives."

When asked what type of new investments they would rather invest in, 73 per cent of investors selected those that complement the investments already in their portfolio and just 27 per cent preferred those designed to replace some of the investments already in their portfolio.

Investor-friendly definitions work better when discussing alternative strategies, the report found. When asked which phrase best describes an investment that does not rise and fall with the markets, just 18 per cent selected the often-used phrase "non-correlated" while the majority (59 per cent) preferred "behaves independently"; and almost two-thirds (64 per cent) of investors would rather invest in "funds that focus on more consistent returns", while 25 per cent preferred "equity funds that give up a little on the upside to get more protection on the downside". Just 11 per cent selected the industry label: "long-short equity funds".

The report also gives 10 terms or expressions to avoid:
1. "Derivatives"; 
2. "Future-proof your portfolio"; 
3. "Smooth equity returns";
4. "Immediately allocate 20 per cent of your portfolio to alternatives";
5. "Non-traditional investments";
6. "Strategies usually associated with hedge funds"; 
7. "We can predict that rates will rise in the future"; 
8. "These are portfolio managers that I have carefully selected"; 
9. "Arbitrage";
10. "Satellite".

With all this in mind, the editorial team at this news service urges all those firms pitching investment stories to us to avoid such expressions. We can think of several terms in press statements that make our toes curl. We urge readers to send in their pet likes and dislikes. They can contact the editor at tom.burroughes@wealthbriefing.com