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.
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.
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