Explaining dual and single priced funds | How to invest | Liontrust Asset Management PLC

Dual priced funds

Our range of UK-based unit trust funds are dual priced. This means our funds have an offer (or buying) price and a bid (or selling) price and the difference between these is known as the bid-offer spread.

When pricing one of our unit trust funds, the pricing agent begins by calculating the creation price, which is the basic cost of creating a new unit and includes the price of buying underlying holdings and dealing costs such as stockbroking commission and stamp duty. To calculate the offer price, the pricing agent adds any applicable initial charge to the creation price. It follows, therefore, that any party purchasing units is compensating existing investors for any dilution in the fund’s value caused by underlying fund transaction costs that may result from their unit purchase.

The bid price at which units may be redeemed by investors is made up of the price that would be received when redeeming the underlying holdings less dealing costs such as stockbroking commission and stamp duty. It follows again, therefore, that any party selling units is compensating existing investors for any dilution in the fund’s value caused by underlying transaction costs that may result from their unit redemption.

The spread between a dual priced unit trust fund’s bid and creation price will be dependent on the profile of the underlying portfolio of holdings. Funds transacting predominantly in less liquid, small cap stocks, where the underlying shares are traded on a wider spread and have higher associated dealing costs, will exhibit a wider bid to creation spread than funds predominantly transacting in more liquid, large cap stocks.

Single priced funds

Our range of UK-domiciled single priced funds are ICVCs (Investment Company with Variable Capital) and our Ireland-domiciled single priced funds are OEICs (open-ended investment company).

Shares in ICVCs and OEICs are bought or sold at the same single price, which is directly linked to the value of the fund’s underlying investments and therefore there is no bid-offer spread. An ICVC and OEIC fund, however, can apply a swinging price dilution adjustment to protect existing shareholders from the costs of buying and selling underlying investments that are incurred as other investors join or leave the fund. The dilution adjustment will effectively swing the price from the single mid-price to either a bid or offer single price for investors joining or leaving the fund. This is usually applied when there are large inflows or outflows given that the associated costs can dilute the value of the fund for existing investors. The Liontrust ICVC and OEIC funds automatically implement a dilution adjustment when 3% of a fund is being subscribed or redeemed.

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