Fund Price dictated by demand or holdings

metrobus

Maybe a silly question but what are your views on what dictates the price of a fund more, it’s popularity or the holdings within it?

Take Vanguard life strategy 80% as an example.

I know the more money put into it increases the stake of each holding within in it and in turn demand for that stock but not at a proportional rate due to others buying and selling the stock.

If it is demand for the fund would it not be unreasonable to think the most popular funds like the VLS range increase a lot around the start of the new tax year with people using up their isa allowance?

Linton

The price of an open-ended "normal" fund ie an OEIC/UT or a pension fund is determined purely by its holdings. No such fund (except perhaps Woodford or a specialist small companies fund) will want to invest so much into a company that it risks having a significant effect on the share price.


I would have thought only a very small % of any company's shares will end up in a start of the year ISA.

metrobus

So a high demand to buy the fund would not drive the fund price up given that the price of the holdings within it stayed constant?

ColdIron

The unit price of an open ended fund (unit trusts, OEICs etc) is determined by the Net Asset Value (NAV) of the underlying holdings and is largely unaffected by demand for the fund. When a fund has inflows of money the fund manager simply buys more of whatever he invests in and creates additional units at the same value of the existing ones in issue. When money flows out of a fund he sells and those unit are destroyed and the proceeds returned to the people that redeem their units

This is very different to shares such as investment trusts or closed ended investment vehicles where there is a finite number of shares in issue, this can result in the share price trading at a different value to the NAV and resulting in a premium or discount

ColdIron

metrobus wrote: »

So a high demand to buy the fund would not drive the fund price up given that the price of the holdings within it stayed constant?

That's right