Midday valuation for funds with US holdings

aroominyork

For funds with midday valuation points - ie before Wall Street opens - are the NAV of the US holdings based on the closing prices of the previous day or on a pre-trading value? I ask because despite markets generally being up today Fundsmith is down 0.62% and I wonder if that is caused by Facebook's fall - or will the hit on Facebook only feed through to Fundsmith's price tomorrow?

Wildsound

It is usually based on previous closing prices, not pre-trading.

Looking at Fundsmith's top 10 holdings, Facebook isn't there. So unless there is a smaller holding that isnt in the top 10, then this won't be it.

Compare it to say Henderson Tech fund:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/j/janus-henderson-global-technology-i-accumulation

This has 6% in Facebook, but is up 1.4% today (check it tomorrow if you're curious to see the effect)

londoninvestor

Wildsound wrote: »

It is usually based on previous closing prices, not pre-trading.

You'd think they must make some adjustment though, perhaps using futures on a relevant index as a proxy if there isn't a liquid out-of-hours price. Otherwise I can gain an advantage by buying this morning at last night's closing price when I know there has been positive overnight news, or conversely selling at last night's close when there is negative news.

aroominyork

I think the HL page on top ten holdings is out of date. Fundsmith's factsheet dated 29/6 shows Facebook as the fourth largest holding.

Wildsound

aroominyork wrote: »

I think the HL page on top ten holdings is out of date. Fundsmith's factsheet dated 29/6 shows Facebook as the fourth largest holding.

You're right, guess that's HL for you!

aroominyork

londoninvestor wrote: »

You'd think they must make some adjustment though, perhaps using futures on a relevant index as a proxy if there isn't a liquid out-of-hours price. Otherwise I can gain an advantage by buying this morning at last night's closing price when I know there has been positive overnight news, or conversely selling at last night's close when there is negative news.

Huh? If there is negative overnight news it will be reflected in the price at midday tomorrow. You would not be selling tomorrow at yesterday’s price.

londoninvestor

aroominyork wrote: »

If there is negative overnight news it will be reflected in the price at midday tomorrow. You would not be selling tomorrow at yesterday’s price.

That's an absolutely true statement providing that, as I expect, the fund price is reflective of the underlying stock prices as of 12noon. So the fund manager needs to either take a trading price for the stock at 12noon, if a liquid price exists, or do something to adjust the last closing price for the market move between closing time (say 9.30pm) and 12noon.

My point was that if it were true the fund price at 12noon is just based on the 9.30pm closing prices of the stocks, without adjustment, then in that case I could profit from the fact that I can trade at yesterday's price. (I could arbitrage the fund against an ETF for example.)

aroominyork

londoninvestor wrote: »

That's an absolutely true statement providing that, as I expect, the fund price is reflective of the underlying stock prices as of 12noon. So the fund manager needs to either take a trading price for the stock at 12noon, if a liquid price exists, or do something to adjust the last closing price for the market move between closing time (say 9.30pm) and 12noon.

My point was that if it were true the fund price at 12noon is just based on the 9.30pm closing prices of the stocks, without adjustment, then in that case I could profit from the fact that I can trade at yesterday's price. (I could arbitrage the fund against an ETF for example.)

Understood. So if the world crashes overnight and Wall Street has not reopened by the midday valuation point, you would get a UK midday valuation pre-crash. I’ll wait for wiser heads to now chip in.

londoninvestor

Got it

All that being said, I share Wildsound's surprise that that Henderson fund would have risen if it was accurately pricing Facebook at 12noon UK time on Thursday...

bowlhead99

Maybe the OP's question took inspiration from this recent thread (https://forums.moneysavingexpert.com/discussion/5872532/investing-in-north-american-fund-when-is-it-valued) where a question was asked about the pricing timing of a US Fund (Baillie Gifford American in that case).

Out of curiosity I looked at the prospectus for that one at the time (the umbrella fund of which it's a part prices at 10am UK), so I still have it in my cache, though I didn't bother posting at the time due to going out for a beer instead...

In the prospectus section 4 (valuations pricing and dealing), at 4.3.13 "Fair Value Pricing and Market Timing" it makes reference to using a fair value policy together with swing pricing (discussed elsewhere in the prospectus) to deter market timers and arbitrageurs. Investment managers have a range of techniques to value securities where a price isn't available or may be stale (most recent price not reflecting best estimate of the value of the security).

I can't be bothered looking up the same thing for Fundsmith but funds running a daily pricing process will generally tell you how they work in their prospectus.

Asghar

aroominyork wrote: »

are the NAV of the US holdings based on the closing prices of the previous day or on a pre-trading value? I ask because despite markets generally being up today Fundsmith is down 0.62% and I wonder if that is caused by Facebook's fall - or will the hit on Facebook only feed through to Fundsmith's price tomorrow?

The valuation today was based on yesterdays official closing price, not the after/pre market price of Facebook which showed a fall of nearly 20%.

Today, the price of Facebook did fall over 18% during trading hours and will be reflected in the valuation at noon tomorrow. Unless the pound falls enough against the dollar to compensate.