Is swing pricing a fee?

No — it is a pricing adjustment that reallocates transaction costs to the investors whose flows caused them. The adjustment stays inside the fund for the benefit of remaining unit holders; the manager does not receive it.

How is swing pricing different from a buy/sell spread?

A spread applies to every transaction at a fixed rate. Swing pricing applies only on days when net flows cross a threshold, and adjusts the single daily unit price for everyone transacting that day — small flows on quiet days pay nothing. Funds typically use one mechanism or the other for the same purpose: preventing flow-driven dilution.

Can swing pricing make my return look worse?

It can add small day-to-day noise to unit prices around heavy-flow days, and an unlucky transaction on a swung day bears the adjustment. Over time, non-transacting holders are better off — the mechanism exists to stop other people's trading costs leaking into your return.

Swing pricing

A unit-pricing mechanism where the fund's unit price is adjusted up on net inflow days and down on net outflow days to pass transaction costs onto entering/exiting investors rather than the existing pool.

Swing pricing adjusts the daily unit price of a managed fund by a small percentage in the direction of net flows. On a heavy net-inflow day the unit price is "swung up" so entering investors pay a slightly higher price; on a heavy net-outflow day the price is swung down so exiting investors receive slightly less. The swing covers the transaction costs (brokerage, market-impact slippage) of investing or liquidating to meet flows.

Without swing pricing, transaction costs caused by inflows and outflows are absorbed by all existing unit holders, including those who did not transact that day — diluting their returns. Swing pricing is one of several mechanisms NZ retail managed funds use to manage flow-driven dilution; alternatives include explicit buy/sell spreads and entry/exit fees.

NZ retail PIE funds that use swing pricing disclose the swing thresholds and maximum swing factor in the PDS or OMI. The mechanism is more common in offshore equity and fixed-interest mandates where underlying transaction costs are material.

Worked example: a global bond fund has a 0.15% maximum swing factor and a net-flow threshold of 1% of fund assets. On a day when redemptions exceed inflows by more than 1% of the fund, the manager swings the unit price down by up to 0.15% — an exiting investor redeeming $50,000 receives up to $75 less, which stays in the fund to cover the selling costs their redemption caused. On a quiet-flow day the price is not swung and nobody pays the adjustment.

Common questions

Is swing pricing a fee?: No — it is a pricing adjustment that reallocates transaction costs to the investors whose flows caused them. The adjustment stays inside the fund for the benefit of remaining unit holders; the manager does not receive it.
How is swing pricing different from a buy/sell spread?: A spread applies to every transaction at a fixed rate. Swing pricing applies only on days when net flows cross a threshold, and adjusts the single daily unit price for everyone transacting that day — small flows on quiet days pay nothing. Funds typically use one mechanism or the other for the same purpose: preventing flow-driven dilution.
Can swing pricing make my return look worse?: It can add small day-to-day noise to unit prices around heavy-flow days, and an unlucky transaction on a swung day bears the adjustment. Over time, non-transacting holders are better off — the mechanism exists to stop other people's trading costs leaking into your return.

Common questions

Related terms