Unit trusts and OEICs
Introduction|
Course|
Q&As |
Recommended reading|
Quiz |
71
12. OEICs - pricing
Like unit trusts, the pricing of OEIC shares is based on Net Asset Value (NAV) and they are usually priced on a forward rather than on an historic basis.
Unlike unit trusts, the shares are single rather than dual-priced. This simply means that at any one time there is one price for buyers and sellers alike, and no spread between bid and offer prices.
Single-pricing sounds attractive. In practice buyers and sellers don't transact at the same price when charges are taken into account.
- Buyers have to pay an initial charge and possibly a 'dilution levy' on top of the price of the share.
- Sellers have to deduct a 'dilution levy' and possibly an exit charge from the amount they receive per share.
For now the principle to take on board is that the OEIC pricing system is not very different from that of unit trusts. Despite all the talk of single pricing, a de facto 'spread' emerges when the initial charge and dilution levy are added in.
However, it is arguable that OEIC pricing is more transparent and fairer than unit trust pricing because:-
- The initial charge and the (discretionary) dilution levy are both explicit charges (i.e. not concealed in the pricing of the shares).
- The dilution levy, where applied, is only paid by investors who are creating expenses for the fund by forcing the fund managers to enter the markets to buy or sell the underlying assets.
For fund management groups, the OEIC may hold advantages:-
- The single-priced OEIC is internationally marketable, whereas the dual-priced unit trust is unfamiliar to non-UK investors.
- The fund managers can issue different classes of shares for creating, say, retail and institutional funds with different combinations of annual and initial charges. Future developments may see the creation of mixed funds containing different classes of assets (e.g. securities and property) as opposed to securities-only funds at present.
Recommend Reading
