Commentator – Ainsley McLaren, Executive Director
Harbour Investment Funds (Harbour Funds, or Funds) are all priced on a daily basis. The unit price is calculated by valuing all the assets and liabilities of the Fund every day and is therefore the value of the Fund’s net assets per unit.
Each Harbour Fund applies the same unit price to both investments and withdrawals on any given day.
Harbour does not apply a “buy/sell” or “entry/exit” spread to unit prices because each Harbour Fund holds sufficient liquidity to meet normal cash flows each day.
Q1: What is your view on spreads – should retail funds have buy/sell spreads and why/why not?
There are a number of reasons given for applying buy/sell spreads. One is that the spread covers the transaction costs resulting from trading the underlying securities held by the fund. Other reasons include allowing for market illiquidity or the time taken for all information to be reflected in security prices. This last reason historically was to limit the possibility that any investor could take advantage of having earlier access to information or price changes and trade in or out of a fund to exploit this to the detriment of other unitholders.
Given a prudent amount of liquidity is held by each Fund and that our Funds are growing, Harbour does not normally need to process trades in underlying securities in order to meet net withdrawals. As a result, we do not believe it is necessary to charge investors a buy sell spread for investing in the Harbour Investment Funds.
In order to enable portability (i.e. ease of switching funds) and simplicity, most KiwiSaver providers do not charge buy/sell spreads, though many funds still have the option to do so within the terms and conditions set out in their governing documents.
Q2: Do you see any future changes re spreads on your funds i.e. adding or removing them? Is there any pressure, competitive or regulatory, that is likely to influence the future of spreads on your funds?
Given the desire of the industry for simplicity and transparency, we would expect the funds still charging a buy/sell spread to review whether the practice is necessary for funds which are of sufficient scale and liquidity