Notification of changes to the underlying fund of P02 Vanguard US 500 Stock Index
09 April 2020
We have been notified by Vanguard Asset Management Limited (the “Company”) of the following recent changes to the swing pricing mechanism of the underlying fund of P02 Vanguard US 500 Stock Index. This change has taken effect from 19 March 2020 (the “Effective Date”).
The Company have confirmed the following, which has been extracted from the Guide to Swing Pricing document of the underlying fund of P02Vanguard US 500 Stock Index.
“Swing pricing is a process designed to protect existing investors in a fund from the costs incurred when other investors buy or sell units in that fund.
If a fund uses swing pricing, this means that the net asset value (NAV) of the fund – the price at which investors buy and sell fund shares – is adjusted up or down to reflect the costs incurred by redemptions and subscriptions in the fund. This passes the costs back to the investors who are trading in and out of the fund, rather than allowing them to be absorbed by existing investors in the fund.
The swing pricing policy brings a number of benefits to investors which we believe will help them achieve better long-term results:
- It insulates existing investors from the costs associated with clients transacting in the fund;
- It provides consistent treatment of all investor transactions on any dealing day;
- It is aligned with investor demand and should encourage further investment into the company, this will generate scale in the funds and allow Vanguard to reduce costs for our existing investors.
Swing pricing works by adjusting the price for all deals on a given day up or down according to net cash flows in a given fund.
Swing pricing passes the costs generated by subscriptions and redemptions back to the investors who are trading in and out of the fund, rather than allowing existing investors to absorb trading costs they are not responsible for.
- We calculate the net asset value (NAV) of the fund, which is the value of all the investments held in the portfolio.
- Dividing this by the number of shares in issue gives the underlying share price.
- Next, we assess cash flows in the fund. If there are more purchases than sales, the fund is in net inflows under partial swing pricing. If the cash flow is greater than the cash flow threshold then we swing the underlying price upwards by a pre-determined swing factor.
- If there are more sales than purchases, the fund is in net outflow. Under partial swing pricing if the cash flow is greater than the cashflow threshold then we swing the price downwards by the same swing factor
It’s important to note that all investors pay the same price on a given day, whether they are buying or selling. This price will be one of the following:
- It will be the underlying share price if there are no net inflows or the threshold level of cash flow has not been breached.
- It will be a price that’s been swung up if the fund has net inflows above the threshold level of cash flow.
- It will be a price that’s been swung down if the fund has net outflows below the threshold level of cash flow.
We also use the swung price to calculate fund performance and tracking error as this is the price investors actually receive.”
The Company also confirmed that the underlying fund of P02 Vanguard US 500 Stock index will adopt a “partial swing pricing” policy with effect from the Effective Date.