We will be changing the dilution policy of all1 our ICVC Funds so that we, Premier Portfolio Managers Limited ("PPM") as authorised corporate director ("ACD"), will have the power to make a “dilution adjustment” to the price of shares instead of imposing a dilution levy. This method is also known as “swing pricing”, as the price will be swung upwards or downwards, subject to the net inflows or outflows of the fund on any given day. This change will take effect from 20th January 2020.
The current pricing of shares for all1 PPM ICVC Funds is carried out on a single pricing basis. This means that a single price is applied to any transaction in a particular fund, regardless of whether an investor is buying (“purchasing”) or selling (“redeeming”) shares. The single price is based on the mid-market valuation of the underlying investments, along with any other assets and liabilities of the particular fund, and this is known as the Net Asset Value (“NAV”).
The actual cost of purchasing or selling investments in which the funds invest may be higher or lower than the mid-market value used in calculating the share price for a fund; for example, due to dealing charges, taxes or through dealing at prices other than the mid-market price. When investors purchase and redeem shares, such dealing charges can have an adverse effect on a shareholder’s interest in the fund, known as “dilution”. In order to mitigate the effects of dilution, the ACD currently has the power to charge a “dilution levy” on the purchase and/or redemption of shares in a fund. The dilution levy is separate from the price of a share and is paid into (or retained by) the fund to try to counteract the dilution effect. Where a dilution levy is not charged on the purchase and/or redemption of shares, the cost of purchasing or selling investments for a fund subsequent to shareholder dealing will be borne by the fund with a consequential effect on future growth.
Change to our Dilution Policy
From 20th January 2020, the dilution adjustment will be calculated by reference to the costs of dealing in the underlying investments of the fund, including any dealing spreads, commission and transfer taxes and, where a dilution adjustment is made, it will be for all transactions in that fund on that day and will be for the benefit of that fund and ultimately the shareholders. PPM will not benefit from the operation of its swing pricing policy and a dilution adjustment will only be applied for the purpose of reducing dilution in the interests of shareholders in a fund. Based on historical data, the ACD anticipates that the dilution adjustment will not exceed 2% of the Net Asset Value of any fund; however the ACD reserves the right to adjust this figure at any time in the event of exceptional market conditions, or in any case where it is of the opinion that the interests of shareholders require the imposition of a higher level of adjustment.
As dilution is directly related to the inflows and outflows of monies in a fund, it is not possible to accurately predict whether dilution will occur at any point in time, or to predict accurately how frequently the ACD will make a dilution adjustment to the dealing price of shares. With the exception of the following funds, it is expected that a dilution adjustment will be applied at each valuation point:
For the funds listed above, a dilution adjustment will only be applied if net dealing on any given day exceeds a pre-determined level (which may vary between funds). The pre-determined levels will be set and reviewed by the ACD. In doing so, the ACD is cognisant of the objective to protect existing shareholders from the dilution effects of material shareholder dealing. The ACD will therefore set the threshold at a level that will achieve the protection for shareholders while at the same time minimising NAV volatility. The ACD will not disclose the swing thresholds as this may encourage some clients to deal below the threshold level, undermining the ability of the mechanism to mitigate dilution.
The FCA has confirmed that the implementation of the proposal will not affect the continuing authorisation of the Funds.
1Does not apply to the Premier UK Money Market Fund, which is a dual priced Unit Trust and as such a Dilution Policy is not applicable or required.
When you invest, your money is at risk because the value of investments, and any income from them, can go down as well as up and you could get back less than you invested. The past performance of an investment is not a guide to how it will perform in the future. Because there are many different types of investment risk and investors have different attitudes to risk, we are not able to categorise our investments as having a specific level of risk. We would therefore strongly recommend that if you do not have professional experience in matters relating to investments, you should speak with a financial adviser before making an investment decision.
Premier Miton Investors is not authorised to provide investment advice or tax advice. Before making an investment decision, it is also important that you read the key documentation for that investment which is available in the literature section of the website, by contacting a financial adviser or by getting in touch with us directly. See ‘Contact us’ for more information or if you are unsure. You can find more details about the specific risks and literature that are relevant to each type of investment on the individual fund, portfolio or investment trust website pages.