Swing Pricing
Protecting long-term shareholders from the impact
of transaction costs resulting from subscription and
redemption activity is a significant consideration
for fund promoters. Trading activity can dilute
shareholders’ interests in a mutual fund because the
single price at which investors buy and sell the fund’s
shares only reflects the value of its net assets priced
by the custodian using a single price.
Dealing costs and spreads that arise as a result of trading the
underlying assets of the fund for flows into, and out of, the fund
are not taken into account. In consequence, these costs impact
all shareholders in the fund, not only those subscribing or
redeeming on any dealing day, resulting in dilution of the fund
performance.
There are different methodologies that can be applied to a fund
to mitigate this dilution effect. These include the application of
an anti-dilution levy (ADL) to shares dealt on any dealing day
and also the use of Swing Pricing.
From 1 April 2013, State Street Global Advisors (SSGA) has
implemented a Swing Pricing mechanism for the majority of
funds within its Luxembourg-based fund range, SSGA
Luxembourg SICAV. This methodology protects the interests
of long-term shareholders from the impact of transaction costs
resulting from subscription/redemption activity within the
funds. The SSGA Enhanced Emerging Markets Equity and SSGA
Emerging Markets SRI Enhanced Equity funds will continue
to operate under an ADL on subscription/redemption activity.
What Is Swing Pricing?
As introduced above, swing pricing is an anti-dilution mechanism
which protects fund shareholders by countering the dilution
effect of subscription and redemption activity. With swing
pricing, a single price is issued for the fund and all clients buy
and sell shares at this price. This single price incorporates a
swing in the Net Asset Value (NAV) of the fund in consideration
of subscription and redemption activity on a dealing day. The
direction and extent of the swing is dependent on the magnitude
and direction of the dealing activity, as described overleaf.
SSGA Luxembourg SICAV
From 1 April 2013, SSGA has implemented a Swing Pricing
mechanism for the majority of funds within its
Luxembourg-based fund range, SSGA Luxembourg SICAV.
This methodology protects the interests of long-term
shareholders from the impact of transaction costs resulting
from subscription/redemption activity within the funds.
Basis
Swing pricing can be applied on either a full or partial basis.
• Full swing means that the price is swung each day, regardless
of the size of the net capital flows.
• Partial swing means that the price swings only if the
calculated net capital flows exceed a pre-determined threshold.
SSGA’s approach to swing pricing is that we will normally alter
the price whenever there are net purchases or net sales in a fund
although for certain funds a threshold is employed (partial swing).
Swing Factor and Direction
Practically, the price swings in accordance with the predetermined swing threshold and the swing factor is set
individually for each fund based on market conditions, as well
as other elements which influence the overall transaction costs
(such as commissions, taxes and other fiscal charges). The
swing factor represents the magnitude of the swing, while its
direction depends on whether the fund is receiving net inflows
or outflows on any particular dealing day:
Swing Pricing | January 2015
• If the day’s dealings within the fund results in a net inflow,
the NAV is adjusted upwards.
• If it results in a net outflow, the NAV is adjusted downwards.
Setting the Swing Factor
Swing factors for each fund are both calculated by the
administrator of the SSGA Luxembourg SICAV and reviewed
by SSGA’s Dilution Effect Review Group on a monthly basis.
The calculation of the swing factor is based on an analysis of
the bid/offer spreads, broker commissions, fiscal and other
applicable trading charges, as well as foreign exchange costs
where relevant and will therefore vary across the funds within
the SICAV fund range depending on the underlying market
exposure for each fund.
Setting the Swing Threshold
Swing thresholds are defined by the SSGA Investment team
and are reviewed by the Dilution Effect Review Group on an
annual basis. The threshold levels are calculated on a fund-byfund basis considering the level at which capital activity and
related trading within the mutual fund becomes material and
dilutes the value of shareholders’ holdings. As with the swing
factor, the threshold level will be dependent on the underlying
asset class and regional exposure of the fund and will therefore
vary across the fund range.
Calculation of the Net Asset Values
The swing effects on the NAV per share are considered by the
fund administrator during the normal process of calculating the
NAV of the fund. The administrator calculates the NAV as
normal and then swings it by a pre-determined amount (the swing
factor) if the net dealing activity is above the swing threshold.
If the swing threshold is reached for a fund on any given dealing
day, the NAV of the fund is adjusted to include the effects of
the net transaction costs, the swing. The direction of the swing
is determined by the direction of the daily net capital flows.
When there are net capital inflows, the swing factor increases
the NAV (to take account of subscriptions of fund units); but
where there are net outflows, the swing factor reduces the
NAV (to take account of unit redemptions). In both cases, the
same NAV applies to all incoming and outgoing investors on a
particular date. The swing mechanism thus protects nondealing shareholders from the trading costs triggered by the
dealing shareholders.
Illustrative Example of the Swing
Pricing Mechanism
Case 1: A net inflow of 10% of the total NAV
The Fund receives dealing requests resulting in a net cash
inflow (net subscriptions) above 5% of the Fund’s NAV from
the previous dealing day. Price will swing to €100 plus 0.05%
swing adjustment.
Result: price swings upwards and all capital trades for the day
will be priced at €100.05.
Case 2: A net outflow of 10% of the total NAV
The Fund receives dealing requests resulting in a net cash
outflow (net redemptions) above 5% of the Fund’s NAV from
the previous dealing day. Price will swing to €100 minus
0.05% swing adjustment.
Result: price swings downwards and all capital trades for the
day will be priced at €99.95.
Case 3: A Subscription order of 2% of the total NAV
is received
The Fund receives dealing requests resulting in a net cash
inflow (net subscriptions) below 5% of the Fund’s NAV from
the previous dealing day. Price will not swing and remains at
the mid-price of €100.
Result: price will not swing and all capital trades for the day will
be priced at €100.
Performance
Factsheets for funds in the SSGA Luxembourg SICAV show the
performance of the funds gross of fees and gross of the effect of
swing pricing. A disclosure will be included on the factsheet to
this effect.
Conclusion
SSGA has determined that the application of the swing pricing
mechanism to the majority of funds in the SSGA Luxembourg
SICAV is the optimal solution to protect long-term shareholders
from the dilution effect of capital trading activity. The introduction
of the swing pricing mechanism is to ensure that investors
subscribing or redeeming from a fund bear the related trading
costs associated with their activity and therefore protecting the
interests of existing shareholders.
Further Questions
If you have any further questions on Swing Pricing, please
contact your SSGA Client Relationship Manager.
To illustrate, assume the NAV per share of a hypothetical XYZ
fund is constant at €100.00. We also assume that there is no
market movement during the period. The swing factor for the
XYZ fund is set at 0.05% (5 basis points) and the swing
threshold for the same fund is set at 5% of its previous trading
day’s closing total NAV.
State Street Global Advisors
2
Swing Pricing | January 2015
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The views expressed in this material are the views of Product Management through
the period ended 08 January 2015 and are subject to change based on market and
other conditions. The information provided does not constitute investment advice as
such term is defined under the Markets in Financial Instruments Directive (2004/39/EC)
and it should not be relied on as such. It should not be considered a solicitation to
buy or an offer to sell any investment. It does not take into account any investor’s
or potential investor’s particular investment objectives, strategies, tax status, risk
appetite or investment horizon. If you require investment advice you should consult
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