ClaringtonFunds Inc. says it will adopt the fair value pricing model of ITG Inc. for international securities held in its funds. The mutual fund management firm says it is using the model to mitigate against the potential negative effects of market timing on its funds.
ITG is an international leader in the provision of technology-based equity trading services. Its fair value pricing model provides mutual funds with an objective method of valuing foreign securities when significant events that could affect pricing occur after foreign markets close and before net asset value is calculated.
The model calculates fair value adjustment factors by 16:30 p.m. ET each trading day. It uses relevant information captured between the time of foreign market closures and the close of North American markets to create fair value adjustment factors for over 34,000 stocks in 43 markets outside North America. In rigorous testing, the model has significantly reduced the opportunity for market timing by generating price adjustments that better approximate the next trade of fund holdings.
Clarington chairman and founder Terry Stone said that the adoption of ITG’s Fair Value Pricing Model is “the important final element of a three-step program to safeguard the interests of investors in our mutual fund products. Our objective with this program is to assure investors in our funds that we are taking pro-active steps to protect their investments from the negative impact of market timing behavior.”
Stone noted that Clarington has previously introduced two measures to deter short-term trading on its funds, including:
- a 2% fee charged to investors who redeem or switch any of the firm’s International, Global or Small Cap funds within 30 days of purchase; and
- a 2% fee, which may be charged to investors who redeem or switch securities of any other Clarington funds, except the Clarington Canadian Money Market Fund and Clarington Short Term Income Class, within 90 days of purchase. Clarington may also redeem or reject future purchases of investors that display excessive trading activity.