Swing Pricing - BlackRock International

The results below highlight the most significant performance impacts across the BGF range
Number of
Swings during
the period
Base ccy
price at
beginning
of period
Base ccy
price
30 June 2011
Class Base
Performance
Performance
without
Swinging
Performance
benefit
BGF Asian Tiger Bond Fund 72 27.25 29.19 7.11% 4.59% 2.52%
BGF Global High Yield Bond Fund 60 14.59 16.79 14.24% 12.11% 2.13%
BGF US Dollar High Yield Bond Fund 42 19.69 22.64 14.94% 14.25% 0.69%
BGF World Technology Fund 12 10.39 13.33 28.34% 27.89% 0.45%
BGF Emerging Markets Bond Fund 32 11.67 12.88 10.38% 9.97% 0.41%
BGF China Fund 42 11.19 12.69 13.35% 12.95% 0.40%
The study on the BSF range found similarly compelling results. We again highlight the most significant
Number of
Swings during
the period
Base ccy
price at
beginning
of period
Base ccy
price
30 June 2011
Class Base
Performance
Performance
without
Swinging
Performance
benefit
BSF Latin American Opportunities Fund 20 112.95 149.9 32.71% 30.48% 2.24%
BSF European Opportunities Absolute Return Fund 10 100 101.4 1.40% 0.65% 0.75%
BSF Fixed Income Strategies Fund 14 100.78 103.35 2.55% 2.06% 0.49%
BSF European Diversified Equity Absolute Return Fund 28 101.82 112.4 10.39% 9.95% 0.44%
BSF European Opportunities Extension Strategies Fund 6 88.11 104.88 19.03% 18.62% 0.41%
BSF European Credit Strategies Fund 7 118.81 113.64 -4.35% -4.73% 0.38%
Source: BlackRock, August and November 2011.
The funds’ performance would have been diluted (reduced) by
the amounts shown in the final column had we not protected it
by using price swinging.
Investors that trade at a swung price are effectively paying the dealing
costs associated with their activity. Applying swing pricing to a fund’s
traded NAV is not done for the benefit of fund promoters or service
providers but solely to protect existing investors’ interests.
A governance-led process – How BlackRock
sets its thresholds
Every one of our funds in the BGF and BSF ranges has an individual
swing threshold and impact fee (the amount by which the NAV
is swung). Both are dependent on the liquidity of the underlying
markets in which a particular fund invests. This means that the swing
amount will differ across asset classes and regions, and is likely
to be lower in more mainstream or developed markets. Thresholds
and impact fees are set by BlackRock’s Swinging Committee, which
meets at least monthly, but may do so more regularly if market
conditions require. These meetings capture our best estimate of
actual trading costs, and review the current levels of protection
provided by swinging to understand if they remain relevant.
The thresholds are confidential, as is generally the case in the
industry, in order to prevent any attempt to avoid a price swing by
dealing in an amount just below the threshold. However, we are
happy to discuss our impact fees with clients, giving them a clear
understanding of the impact their trading activity may have.
It is worth noting that unforeseen events, like the collapse of Lehman
Brothers in September 2008, or the more recent euro crisis of
2010/2011, can cause risk aversion to spike, meaning that market
liquidity evaporates and dealing costs rise accordingly. In such
scenarios, impact fees should be expected to be increased, and/or
thresholds lowered, by the Swinging Committee in order to provide
the appropriate level of protection in the new conditions.
Conclusion
BlackRock has pursued its simple, but specific, approach to fund
performance dilution for a number of years, reflecting its status
as a pioneer. Our policy is solely about protecting the interests of
investors, and we should emphasise again that when an investor is
impacted by a price swing in subscribing to, or redeeming from, a
fund they are only paying/receiving a fair price, taking into account
the costs of dealing. Ultimately, investors would have to bear these
costs themselves if they were dealing in the underlying securities
direct. These are the costs of investing and they have to be borne.
Our investors are not being treated unfairly.
We believe that we can demonstrate that funds that apply swing
pricing will show superior performance over time compared to
those (with identical investment strategies and trading patterns)
that do not.