Will Swing Pricing Save Sedentary Shareholders?

Starting in November 2018, U.S. public, open-ended mutual funds will have the option to adjust the daily pricing of the fund—the net asset value or NAV—to account for and recoup large transaction costs.  Currently, the fund, and therefore its remaining shareholders, absorb those costs generated by existing shareholders. This quiet, technical change in the regulation—swing pricing—is a part of the SEC’s sweeping mutual fund Liquidity Management Rules, adopted in 2016.

Swing pricing is an anti-dilution tool protecting shareholders staying in a fund—the sedentary shareholders—by guarding their investment from transaction cost erosion, which by 2014 estimates total $10-17 billion annually.  This … Read more