Guidelines for determining month-end values for performance measurement

Background
As the fund market expands, it is becoming increasingly important to be able to make fair comparisons between different funds with regard, inter alia, to the performance of the fund unit values.

At the end of every full and half year, unit values that the fund reports in its Annual and Half-yearly Reports, and which enable a fair comparison, shall be used[1]. No corresponding regulation exists for the other ten months of the year, and it is against this background that the Swedish Investment Fund Association has decided to adopt the following guidelines for the calculating and reporting of NAV (Net Asset Value) at the end of each month (month-end values). The intention is that this value should be used in the measurement of the performance achieved by investment funds.

The main principle is that the value in question should be reasonably comparable with the figure included in the most widely used benchmark indices. The aim should be to reflect the closing prices on the markets in question. In other respects, the following guidelines should apply.

Value determination

A month-end value (NAV) shall be submitted to the Swedish Investment Fund Association’s database no later than the second banking day after the end of the month.

For month-ends when the final day of the month does not coincide with a banking day, the final banking day shall be counted as the final day of the month for the fund. If the final banking day differs between the various markets in which the fund invests, the latest day on which one of the markets is open shall count as the final day of the month for the fund. Investments in markets that close before the final day of the month shall be included at the value of the respective final banking day and at the exchange rate applicable on that day.

When determining the value of listed shares, the point of reference should be the closing paid price. If no such price is listed, an average of the closing buying and selling prices should be used. As a last resort, the closing paid price on the most recent date on which a price was listed should be used[2].

Other shares shall be valued at the market rate on an objective basis.

In the case of fixed income instruments, the price should be based on the stock market listing or other reliable market listing, and calculated as the average of the closing buying and selling prices. In the absence of a reliable listing, the market value of the instrument shall be calculated on the basis of corresponding listings for instruments with similar durations, after adjustments for differences in credit risk, liquidity, etc.[3].

WM Company’s mid rates at 16.00 hours GMT shall be used for currencies[4].[5] Currencies not included in these mid rates shall be valued at the market value on objective grounds.

The prices of derivatives should be determined on the basis of a stock market listing or other reliable market listing, and should be calculated as an average of the closing buying and selling prices. When determining the prices of OTC derivatives or derivatives where there is no listed price, a written valuation should be obtained from the issuer of the instrument.

 

 

[1] Alternatively, the month-end value reported can be replaced retroactively with the unit value from the Annual or Half-yearly report.

[2] Note: If a share is listed on more than one stock market and the fund’s rules allow it to choose between the listed prices on these markets when determining the price, the pricing shall be determined by the rate used in the relevant benchmark index for the fund. In other respects, and when, from a practical viewpoint, it is difficult to determine prices using the method described above, the rate that derives from the stock market where the share is purchased shall be chosen.

[3] Note: The working group that has been appointed within the Association to draw up these guidelines has discussed which price, in the absence of a paid price, should be used for fixed income securities and currencies. The group’s proposal represents an endeavour to take into account the interests of existing unit holders as well as those who have invested in the fund at the time of valuation; consequently an average price has been proposed. The group has also taken into account what prices serve as the basis for the indices that are normally used as benchmarks.

[4] See Note 3 above. 

[5] WM Company provides information on several different exchange rates (buying, selling, average). Morgan Stanley’s index, however, is based on middle prices. WM Company’s closing mid rates for U S dollars can be found on Reuter’s WMRSPOT01 and the following pages

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