Nearly Half of These Funds Were Estimated to Employ Fair Valuation Daily
Interactive Data Corporation (NYSE: IDC), a leading provider of financial market data, analytics and related services, today announced that independent research from its Pricing and Reference Data business has identified, through statistical analysis, that international mutual funds have used their fair value procedures more frequently over the past few years. These findings are contained in a study conducted by Robert Haddad, senior manager of evaluated services, Interactive Data Pricing and Reference Data.
In his research, Haddad reviewed public net asset value (NAV) data for 166 U.S. mutual funds investing in international equities, each representing a distinct fund family, from April 2004 to March 2007. Haddad analyzed the use of “trigger levels” with respect to relevant proxies, sometimes referred to as benchmarks, which are often used by funds as an input to help determine when to utilize a fair value methodology.
For example, a fund may decide to use its fair value procedure if a proxy, such as the S&P 500(R) Index, moves by 50 basis points (bps) or more between the time that the London Stock Exchange closes and the time the fund determines its NAV. Haddad estimated that approximately 91% of the fund families in the study currently employ a systematic fair value methodology; with 42% of the funds estimated to use fair valuation every day (i.e. 0 trigger). By contrast, he estimated that approximately 67% of the funds employed fair valuation procedures three years ago, with 20% of the funds estimated to have used such procedures on a daily basis. A complete description of the methodology and the results of the study are available at http://www.interactivedata-prd.com/pdfs/WhitePaper13-20070809.pdf.
“A number of factors in recent years, including heightened regulator scrutiny and the notion that a systematic approach to fair valuation can more effectively reflect current market conditions, have led to a near universal acceptance of employing a fair value methodology to estimate the value of international equity securities at the time of NAV calculation,” said Robert Haddad, senior manager of evaluated services, Interactive Data Pricing and Reference Data. “This is evidenced by the significant interest in Interactive Data Pricing and Reference Data’s Fair Value Information Service, which is currently utilized by more than 150 fund complexes after being introduced just a few years ago.”