[TSP_Strategy] Re: "I" Fund Yesterday - Close of Business 1/17

 

The I fund will never exactly match the EFA every day for two reasons:

1. The EFA does not include interest and dividends.  The I fund adds interest and dividends on a daily basis.
2. Fair Value Pricing

Fair Value Pricing

On some days, the percentage change in the I Fund share price reported by the TSP can be significantly different from the percentage change reported for the MSCI EAFE (Europe, Australasia, Far East) Index, which the I Fund tracks. These differences usually occur when the investment manager finds it necessary to reprice its EAFE Equity Index Fund, in which the TSP invests, to reflect changes occurring after the close of the foreign markets.

This process, known as "fair valuation" or "fair value pricing", occurs when there are U.S. market or currency movements between the time the foreign markets close and 4:00 p.m., Eastern time, when the EAFE Equity Index Fund share prices are determined.

For example, the Far East markets close at 3:00 a.m., Eastern time. If there is a major event afterwards - whether a natural disaster or even a major U.S. market swing that affects the pricing of the stocks in the EAFE Equity Index Fund - without fair value pricing, that event's impact on share pricing would be ignored. That is, the price information from the foreign markets can become "stale", or out of date, by the close of the U.S. markets at 4:00 p.m., Eastern time - a full 13 hours later. On such a day, absent fair value pricing, market timers could buy the I Fund and sell their holdings on the following day in order to benefit from the "stale" pricing. They would accomplish this transaction at the expense of other investors in the fund.

Fair value pricing ensures that traders do not benefit from trading on stale prices. It prevents traders from using events that may have occurred between the close of the foreign market and the close of the U.S. market, which may have affected EAFE Index Fund prices, to achieve an unfair trading and profit advantage at the expense of long-term shareholders.

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Posted by: sarah_oz@yahoo.com

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Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.

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Ditulis oleh: Andriansyah -