In the absence of anti-dilution measures, trading costs incurred by investors redeeming or subscribing are borne proportionally by all shareholders in a given fund. These trading activity-related costs result in dilution of the value of existing shareholders’ investment in a fund. Swing pricing serves as a means of mitigating the dilution effect.

Swing pricing has become the standard anti-dilution tool in the European fund management industry due to the advantages it offers investors. Essentially, swing pricing serves as a mechanism to ensure that costs incurred by investors who are buying or selling are borne by those investors, rather than spreading the costs across the existing investors in the fund.

Swing pricing is a mechanism by which long-term shareholders are protected against the dilution impact of securities trading that relates to investors entering or exiting the fund.

This dilution impact of securities trading includes the following elements:

• The bid-offer spread of the underlying portfolio of investments
• Broker commission
• Any taxes, e.g. stamp tax

With swing pricing, subsequent to the existing daily Net Asset Value (NAV) calculation, the NAV is then adjusted to include this dilution impact. This adjustment, either up or down by a pre-determined amount, is commonly referred to as the ‘swing factor’.

There are two types of swing pricing: ‘full’ and ‘partial’. With full swing the price will move regardless of the size of the net flows, whereas with partial swing the price is adjusted only if the net capital flows exceed a pre-determined threshold, which is aligned to when dilution is incurred.

We consider partial swing the more appropriate option as the factor will be applied to the NAV only in line with overall shareholder activity in the fund, and only if the net capital flows exceed a pre-determined threshold that would make securities trading more likely.

The table below outlines the impact of swing pricing on both dealing and nondealing shareholders:

A robust governance framework is in place to monitor the effectiveness of our use of swing pricing. All the relevant factors and thresholds are regularly reviewed.

This continuous review of the trading costs ensures the swing factors are set at appropriate levels. For transparency, the swing factors for each fund are published on our website.

Swing pricing is a provision within the prospectus for each of our funds, and is consistently applied.

We would like to reiterate our view that swing pricing offers an additional level of protection to our funds and, moreover, to our investors. Additionally, while the aim of swing pricing is not to enhance results over time, its impact can be beneficial to a long-term investor’s net returns.

Our Luxembourg funds have implemented swing pricing following a thorough review and consultation process, and with the best interests of our investors in mind. The dilution effects of trading costs must be addressed, and we believe that partial swing pricing provides the best form of protection available.

Please find below factors that are applied as per the prospectuses:

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