Skip to main content
Back

Swing Pricing

Protecting the Investor against Fund Dilution

Q1: What is fund dilution?

When there are large net subscriptions into or net redemptions out of a fund, transactions costs incurred in the purchase or sale of the fund’s underlying investments are charged to the fund, which may adversely affect the existing shareholders/unitholders in the fund. This effect is known as “dilution”.

 

Q2: What is swing pricing?

Swing pricing is a pricing adjustment mechanism specifically designed to protect existing shareholders/unitholders in a fund from the dilutive effects of transaction costs of large net subscriptions or redemptions. These transactions costs include, but are not limited to, dealing costs and estimated bid/ask spreads on transactions.

Without a pricing adjustment, transactions costs would be borne by all existing shareholders/unitholders in the fund. Instead, when this mechanism is triggered, the transaction costs are, as far as practicable, borne by those investors who have just subscribed or by shareholder/unitholders who have redeemed on that Dealing Day.

Manulife Investment Management does not benefit from swing pricing.

 

Q3: How does the swing pricing mechanism work?

The swing pricing mechanism has three main components. 

  1. Swing Threshold
    Swing Threshold is a pre-determined threshold calculated as a percentage of the sub-fund’s NAV. The total subscriptions minus the total redemptions in the fund is calculated on every valuation day. If there are more subscriptions, the result will be “net subscriptions” and if there are more redemptions, the result will be “net redemptions”.

    If, on any given valuation day, the net subscriptions/net redemptions expressed as a percentage of the fund’s NAV is higher than the Swing Threshold, the NAV per share/unit of the fund will be adjusted by a pre-determined percentage, known as Swing Factor.

  2. Up Swing Factor
    This is applied when the amount of net subscriptions as a percentage of the fund's NAV is higher than the Swing Threshold. In this case, the fund’s NAV per share/unit is increased by the Up Swing Factor. The effect is the same as asking shareholders/unitholders to pay an extra fee to subscribe on that day, and then putting this fee back into the fund so the impact to existing shareholders/unitholders is mitigated.

    An example:

    Assumptions:
    • Fund’s NAV: $100 million
    • Swing Threshold: 2% of the fund’s NAV
    • Up Swing Factor: 0.20%
    • Total Subscriptions: $11 million
    • Total Redemptions: $8 million
    Total Subscription – Total Redemptions = $3 million (net subscriptions)
    Net Subscriptions as a % of Fund’s NAV: 3m/100m = 3%, which exceeds Swing Threshold
    Therefore, the Fund’s NAV per share/unit for this valuation day will be adjusted up by the Up Swing Factor of 0.20%.

  3. Down Swing Factor
    This works similarly to the Up Swing Factor, but for situations when the amount of net redemptions as a percentage of the fund's NAV is higher than the Swing Threshold.

    An example:

    Assumptions:
    • Fund’s NAV: $100 million
    • Swing Threshold: 2% of the fund’s NAV
    • Down Swing Factor: 0.25%
    • Total Subscriptions: $8 million
    • Total Redemptions: $10.5 million
    Total Redemptions – Total Subscription = $2.5 million (net redemptions)
    Net Redemptions as a % of Fund’s NAV: 2.5m/100m = 2.5%, which exceeds Swing Threshold
    Therefore, the Fund’s NAV per share/unit for this valuation day will be adjusted down by the Down Swing Factor of 0.25%.

    The same swing factor will be applied to the NAV per share/unit of every class of that fund.

    The adjusted NAV per share/unit (“Swung NAV”) will be the price for all subscription, redemption and switching orders received on that particular Dealing Day.

 

Q4. Do the Swing Threshold and Swing Factors ever change?

Both the Swing Threshold and Swing Factors will be reviewed and determined on a regular basis, to reflect the estimated transaction costs and prevailing market conditions.

 

Q5. Will swing pricing be implemented on a daily basis?

No, swing pricing may not be implemented daily as this will depend on the quantum of net subscriptions or net redemptions received on that Dealing Day. It will only be implemented when net subscriptions and/or net redemptions reach or exceed the Swing Threshold.

 

Q6. How will it affect fund performance?

Performance returns calculation is based on the adjusted NAV, i.e. Swung NAV and therefore, swing pricing could increase the variability of the returns of the fund.

  • What are private markets?

    There has been growing conversations to invest beyond traditional public securities, stocks and bonds. We explore private market investments, what are they and why do investors turn to them?

    Read more
  • 5 benefits of ESG investing

    The demand for ESG investing is surging, as investors in different life stages align their personal values to their financial goals. We list the five benefits of ESG investing.

    Read more
  • Dollar cost averaging: An easier way to navigate volatile markets

    If investors wish to reduce volatility and benefit from long-term growth when the markets move up and down, the passive strategy of dollar cost averaging may be a feasible choice.

    Read more
See all
Confirm