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Rating:Are Stale Quantities a Problem? Not Rated 3.0 Email Routing List Email & Route  Print Print
Monday, February 13, 2006

Are Stale Quantities a Problem?

by: Sean Hanna, Editor in Chief

Fund firms may come under pressure to drop their T+1 pricing method when they calculate their net asset values thanks to a new academic study.

Newletter author Mark Hulbert penned a report in the New York Times Monday that detailed the findings of an academic study that found the T+1 methodology is, in some cases, unfair to shareholders.

The study ("Live Prices and Stale Quantities: T+1 Accounting and Mutual Fund Mispricing") was authored by Harvard Business School's Peter Tufano and Ryan Taliaferro and consultant Michael J. Quinn, a vice president at Analysis Group Inc.

The problem is that the funds using the method are pricing the NAV based on same day stock prices applied to their previous day's stock holdings. That means that funds that trade a position in a stock with a large price change that day may post an innacurate NAV. In short, those funds are applying "fresh prices" to "stale quantities."

The research found that in one fund the daily NAV was off by as much as 400 basis points on a given day.

While the innaccuracies will even out over time, they have the potential to benefit some shareholders at the expense of other shareholders. The issue also has the potential to reinforce the perception that fund firms are operated in way that is unfair to small and long-term shareholders.

To fix the issue, fund firms would have to move to using same day positions when they calculate their NAVs, a move that would increase the cost of administering funds. 

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