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Single swing pricing

The way we price many of our funds is changing. This is to standardise the method used across most of our unit trust range of funds and further mitigate the impact of ‘dilution’ on the value of your investments. The change to the pricing method will be implemented on 1 December 2020.

What is a pricing method?

A pricing method is the way that we calculate the prices of funds to ensure all investors are treated fairly. There are different methods for calculating the price of a fund. Each method has a different way of allowing for the costs of buying and selling the fund’s assets when the fund is growing or reducing in size.

Moving our funds to single swing pricing

Single swing pricing is a method designed to ensure fair treatment for all investors in the fund, and is the most widely used pricing method in the funds industry. The way it works is that all investors who are investing into a fund or taking money out of a fund are quoted the same price. That single price generally sits at a ‘mid’ point. However, when there are particularly large purchases, the price ‘swings’ up. The same process happens for withdrawals, where the price can then swing down. This makes sure that the dilution costs caused by these transactions are covered by those either entering into or exiting the fund and not by you, the fund’s investors.

The Legal & General UK Property Fund and Legal & General UK Property Feeder Fund will not be changing their pricing method. Our research showed that the particular nature of investing in physical property justifies maintaining the current dual priced method, in particular to encourage long term investing and to mimic the charges that most customers will be familiar with when buying property. The Legal & General Real Income Builder Fund will also not be changing its pricing method as this fund is structured in a way that links it to another fund structure and therefore it was considered to be in the best interests of investors to retain the current pricing method for this fund.

What is dilution?

When an investor buys into a fund, the fund manager invests the new money into the market. There are costs to placing money into the market such as brokerage fees (similar to costs you might be charged when purchasing a share in a company).

Another cost is when you buy an asset. It will often cost more to buy the asset than the price at which you could then sell it yourself. For example, when buying a car, you would generally have to pay the dealer more to buy it than the cash value you might receive if you were to trade in the exact same model.

If these costs are not covered by the investors entering into the fund, then they will be paid by all the existing investors and lower the unit price. This is what’s known as fund dilution.

Fund dilution can also occur when an investor is taking their money out of a fund. When an investor wants to take their money back, the fund manager has to sell some underlying investments to cover this which can again incur costs for investors who remain in the fund.

FAQs

Yes, this is legal. The FCA approved our submission to make this change. Part of the process is contacting customers to give them advance notice of the change.

Once we move to the new pricing methodology there may be a slight difference to the value of your investment initially. However the total number of units you will hold will not change as a result of the new pricing methodology.

Should you decide to sell part/all of your investment, you will generally receive a better price or the same price as you would have done prior to single swing pricing. However there are certain circumstances where the price you will receive could be slightly less that you would have received previously.

Further details can be found on Page 5 of the guide.

When would this happen? Details of when this will happen are documented in the fund's prospectus. Generally speaking it depends on the amount of new investments and withdrawals placed on a particular day.

If the total value of monies received into a fund on a given day outweighs the total value of monies going out of a fund, and it breaches a pre-determined tolerance, then the price will swing upwards. However if the total value of monies leaving a fund exceeds that of the monies coming into a fund, then the price will swing down.

This won't happen everyday, only when there are large trades one way or the other. Swinging the price up or down may affect the price of the deals on that day slightly but is a method used to ensure the transaction costs associated to buying or selling the underlying assets and protects customers who are invested in the fund from the costs associated with purchases or redemptions, also known as ‘dilution’.

How will I know this has happened? Daily transactions and fund flows are closely monitored within Legal and General who are responsible for making a decision on whether a funds price should be swung or not. As a customer this swing will not be apparent from any documentation you receive and you would need to contact us to enquire as to whether a price had been swung on a given day.

Will I be compensated for this? No, the purpose of this methodology is to protect customers who are invested in the fund from the costs associated with purchases or redemptions. We believe this change is a positive one for our customers and offers the best possible outcome.

The Legal & General UK Property Fund and Feeder Fund will not be changing their pricing method as the Manager believes the particular nature of investing in physical property justifies maintaining the current dual priced method, in particular to encourage long term investing and to mimic the charges that most customers will be familiar with when buying property.

The Legal & General Real Income Builder Fund will also not be changing its pricing method as this fund is structured in a way that links it to another fund structure and therefore it was considered to be in the best interests of investors to retain the current pricing method for this fund.

The price you receive will only swing up or down when the cumulative flows of a fund exceed the pre-agreed threshold. The swing factors (How much the price will be swung by) are noted in the Prospectus and will be reviewed on a quarterly basis by the Legal & General Unit Pricing Review Group (UPRG). Any change would be noted in the Prospectus.

We’re unable to disclose fund thresholds. Thresholds are confidential to protect all unit holders from investors who wish to avoid transactional costs by buying or selling at a level deliberately lower than the threshold.

Useful documents

Download a copy of our Guide to Swing Pricing and our investor letter below.

Guide to Swing Pricing - brochureInvestor letter

How were the funds priced before the change?

As our range of unit trust funds has grown over the years, a number of different pricing methods have been used across the range:

Dual pricing means all investors buying into the fund pay a higher price than investors selling out of the fund. The higher price paid by investors buying into the fund is the offer price. The lower price paid to investors selling out of the fund is the bid price.

Single pricing means the manager calculates just one price at each valuation point. Investors buying units in a fund or selling their units do so at the same price on each dealing day.

Single quoted swinging dual price is similar to the dual pricing method. We calculate both an offer and a bid price and, depending on whether there are more net inflows or outflows on a given day for a share class, the price for all transactions (buying and selling) will swing between these two prices.

In practice, if the day’s inflows in a unit class are positive, the price used for all transactions (buying and selling) in that unit class will be the higher offer price. If the day’s inflows are negative for a unit class, then all transactions (buying and selling) will use the lower bid price.

Units in a fund are issued and redeemed at a single price on each day (there is no bid/offer spread). We apply a dilution levy when a transaction looks like it may have a negative impact on the remaining investors in the fund. The dilution levy is separate from the price of the units in the fund and is invested into the fund to counteract the effect of dilution.

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