The Wall Street Journal (subscription required) in this article–“Mutual Funds’ Pricing Flaw: Use of ‘Fair Value’ Is Elusive Despite the SEC’s Concerns“–reports important SEC findings regarding mutual fund pricing:
To help offset market-timing, which particularly affects U.S. funds holding foreign stocks and bonds, the SEC has required funds to have procedures in place to perform “fair-valuation” pricing to estimate updated values for their portfolio securities when accurate market prices aren’t “readily available.”Releasing its findings for the first time, the SEC said this week that nearly a third of the more than 960 funds surveyed hadn’t done any fair-value pricing in the volatile 20 months ended in September, when the SEC mailed out its questionnaire. . . Because they didn’t update their portfolio values, the SEC estimated that investors in about 15% of the funds surveyed saw their assets reduced by 2% or more through market-timing. Another 10% had losses, or “dilution,” at the hands of market-timers amounting to between 1% and 2% of their holdings, according to the SEC.