You may have noticed a sudden increase (over 6%) in the price of our Property life and pension funds on 8 March 2010. This means that investors in our Property life and pension funds will have seen an increase in their own fund value of a similar amount.
This is because we moved the pricing basis for our Property life and pension funds from cancellation back to creation.
Although other types of equity and fixed interest funds are constantly moving between creation and cancellation depending on cash flows in or out, the impact on the fund price is usually relatively minimal. A property fund is different.
Rather than being influenced solely by daily cash flows in or out as for other types of fund, we control the pricing basis. This is because the difference between the cost of buying and selling assets in property funds is much more significant, between 6% and 7%. Also, the fund doesn’t buy or sell properties on the back of one day’s cash flow. Because of this we set the pricing basis to reflect the underlying trend of cash flow and the associated costs of trading property in line with the trend. The decision to move to a creation pricing basis was therefore taken because the fund is now experiencing a trend of positive cash flows.
For an explanation of 'creation' and 'cancellation' pricing please see our question and answer document.
Other funds affected
The change also had a positive effect on those invested in a number of our other funds that are invested in the Property fund. These include:
- Select Distribution
- Select Reserve
- Property Select Portfolio
- Conservative Select Portfolio
- Balanced Select Portfolio
- Balanced Plus Select Portfolio
- Growth Select Portfolio
- Growth Plus Select Portfolio
The extent to which these funds were affected depended on the proportion invested in our Property fund on 8 March 2010. As a guide, a 10% weighting would have resulted in an increase of over 0.6%, a 20% weighting would have resulted in an increase of approximately 1.2% and so on. The exact proportion invested in each of the funds listed above will change day to day. Our questions and answer document gives the proportions invested in our Property fund at the end of January 2010 for your information.
Those who recently switched in or out of the fund may have been affected depending on when we received notification of the switch. Our normal switch rules will apply. Please refer to our switch rules posted in the ‘How to’ section for details.
We’ve prepared a question and answer document to answer any questions you may have, including why we’ve changed back to a creation pricing basis.