SEGUNDA MEDIDA SEGMENTACION DE LA FLOTA DE CAMIONES . 55

4.1

Pricing and Charges

Learning Objective

7.4.1 Know how unit trusts and OEIC shares are priced

The prices at which authorised unit trusts or OEICs are bought and sold are based on the value of the fund’s underlying investments – the net asset value. The authorised fund manager is, however, given the flexibility to quote prices, which can be either single-priced or dual-priced (although this decision must be taken at the outset and the manager cannot switch between the two as and when it suits).

Single pricing refers to the use of the mid-market prices of the underlying assets to produce a single

price, while dual pricing involves using the market’s bid and offer prices of the underlying assets to produce separate prices for buying and selling of shares/units in the fund. Traditionally, authorised unit trusts have used dual pricing and OEICs have used single pricing. All funds now have a choice of which pricing methodology they use; whichever is chosen must be disclosed in the prospectus.

When a fund is single-priced, with its underlying investments valued based on their mid-market value, this method of pricing does not provide the ability to recoup dealing expenses and commissions within the spread. Such costs are to be recouped either by applying a separate charge, known as a dilution

levy, on purchases or redemptions, or by swinging the daily price to a dual-priced basis depending on

the ratio of buyers and sellers on any day. It is important to note that the initial charge will be charged separately, whichever pricing method is used.

The maximum price at which the fund manager is able to sell new units is prescribed by the FCA. It is known as the maximum buying price and, under dual pricing, comprises the creation price (ie, the price the manager must pay to the trustee to create new units, which broadly consists of the value of the underlying investments and an allowance for dealing costs) plus the fund manager’s initial charge.

Example

Value of the portfolio (at offer prices) divided by the number of units 100.00p Add, allowance for dealing costs: brokerage at, say, ¼% 0.25p

Stamp duty at ½% 0.50p

Subtotal (= creation price) 100.75p Add, fund manager’s initial charge at, say, 6.55% 6.55p

Maximum buying price 107.30p

The actual buying price does not have to be 107.30p and, because of the sensitivity of investors to charges, the fund manager may feel that a lower price of, say, 103p per unit is more appropriate.

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The price at which the fund manager will repurchase units is calculated in a similar manner. From the investor’s viewpoint it is referred to as the selling price, and the minimum selling price is also the cancellation price, ie, the price received from the fund by the manager when he cancels the units, using as its starting point the value of the portfolio at bid prices. Again, the manager has flexibility about the price that is set, subject to its being no less than the minimum selling price.

The prices of most individual funds are provided in broadsheet newspapers each day. The telephone numbers and addresses of the fund managers are normally provided alongside the prices.

4.2 Dealing and Settlement

Learning Objective

7.4.2 Know how shares and units are bought and sold 7.4.3 Know how collectives are settled

Investors can buy or sell units in a number of ways:

• direct with the fund manager (either by telephone, via the internet or by post); or • via their broker or financial adviser; or

• through a fund supermarket.

Whether an investor wishes to buy or sell his units, they will be either bought from, or sold back to, the authorised fund manager. There is no active secondary market in units or shares, except between the investors (or their advisers/intermediaries) and the fund manager. The key point to note, therefore, is that units in AUTs and shares in OEICs are bought from the managers themselves and not via a stock market.

A fund supermarket is an organisation that specialises in offering investors easy access to a range of unit trusts and OEICs from different providers. They are usually based around an internet platform which takes the investor’s order and processes it on their behalf, usually at reduced commission rates. Fund supermarkets offer online dealing, valuations, portfolio planning tools and access to key features documents and illustrations. Investors can look at their various holdings in different funds in one place, analyse their performance and easily make switches from one fund to another.

Settlement currently takes place directly with each fund group. For purchases, once the investment

has been made and the amount invested has been received, the fund group will record ownership of the relevant number of units or shares in the fund’s share register. When the investor decides to

sell, they need to instruct the fund manager (or ask their adviser or the supermarket to instruct the

fund manager), who then has four days from receipt of the instruction in which to settle the sale and remit the proceeds to the investor. Traditionally, this instruction had to be in writing, but since 2009 managers, supermarkets or advisers have been able to accept instruction via the internet or over the telephone, using appropriate security checks.

When an order to buy or sell units is undertaken by an organisation that provides dealing services, such as a fund supermarket, it is likely to use a systems platform to place those orders with the fund management group.

One widely used system is EMX, which can be used by firms to enter customer orders, aggregate these and then send them electronically to the fund group. The firm then receives an electronic confirmation of receipt and, once the deal is traded at the next valuation point, EMX will send an electronic dealing confirmation showing the price at which the deal was done.

EMX was taken over by Euroclear UK & Ireland, the parent company that owns CREST, in late 2006 and it now has an automated straight-through processing (STP) platform for fund dealing and settlement.