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What is a "FV" and how does it work?
- Thread starter Gilligan
- Start date
Gilligan
Member
What is a “FV” and how does it work?
This question has been asked several times on this board. WHEELS and several members have tried to explain it. This thread will hopeful shed some light on the FV.
The FV means “Fair Valuation” or “Fair Value Adjustment” or “Fair Value Pricing”.
From the TSP.GOV web site:
Participants have asked why, on some days, the change in the I Fund share price reported by the TSP does not match the change reported for the Morgan Stanley EAFE (Europe, Australasia, Far East) index, which the I Fund tracks. This happens when the Board's investment manager, Barclays Global Investors (BGI) reprices its EAFE Equity Index Fund, in which the TSP invests, after the close of the foreign markets. This process, known as "fair valuation" or "fair value pricing" occurs when there are large U.S. market or currency movements between the time the foreign markets close and 4:00 p.m. eastern time, when BGI's share prices are determined.
Fair value pricing is used by mutual funds when there is a gap between the time the index closes and the time the fund is priced to reflect the index. Fair value pricing was implemented to protect long-term shareholders from short-term traders attempting to profit from price difference between the index's closing price and the price of the fund before it was repriced. While it causes some variation in daily pricing, the variation is generally reversed the next day.
Fair value pricing in the TSP's I Fund occurs less than 20% of the time. The TSP is meant to be a long-term retirement savings account, not a short term trading vehicle. Mutual funds use fair value, redemption fees, and limits on numbers of trades to prevent market timing activity and the resulting excessive trading costs from hurting the performance of the fund. To date, the TSP has chosen to use only fair value pricing, but that may change in the future.
Fair valuation ensures that traders cannot "market time" the I Fund by making investment decisions based on the "stale" prices, thus diluting the returns of other participants who invest in the I Fund. Because the EAFE uses the foreign market closing prices to calculate its values, its price change will differ from the TSP's on those days.
This question has been asked several times on this board. WHEELS and several members have tried to explain it. This thread will hopeful shed some light on the FV.
The FV means “Fair Valuation” or “Fair Value Adjustment” or “Fair Value Pricing”.
From the TSP.GOV web site:
Participants have asked why, on some days, the change in the I Fund share price reported by the TSP does not match the change reported for the Morgan Stanley EAFE (Europe, Australasia, Far East) index, which the I Fund tracks. This happens when the Board's investment manager, Barclays Global Investors (BGI) reprices its EAFE Equity Index Fund, in which the TSP invests, after the close of the foreign markets. This process, known as "fair valuation" or "fair value pricing" occurs when there are large U.S. market or currency movements between the time the foreign markets close and 4:00 p.m. eastern time, when BGI's share prices are determined.
Fair value pricing is used by mutual funds when there is a gap between the time the index closes and the time the fund is priced to reflect the index. Fair value pricing was implemented to protect long-term shareholders from short-term traders attempting to profit from price difference between the index's closing price and the price of the fund before it was repriced. While it causes some variation in daily pricing, the variation is generally reversed the next day.
Fair value pricing in the TSP's I Fund occurs less than 20% of the time. The TSP is meant to be a long-term retirement savings account, not a short term trading vehicle. Mutual funds use fair value, redemption fees, and limits on numbers of trades to prevent market timing activity and the resulting excessive trading costs from hurting the performance of the fund. To date, the TSP has chosen to use only fair value pricing, but that may change in the future.
Fair valuation ensures that traders cannot "market time" the I Fund by making investment decisions based on the "stale" prices, thus diluting the returns of other participants who invest in the I Fund. Because the EAFE uses the foreign market closing prices to calculate its values, its price change will differ from the TSP's on those days.
