Personal Finance

rono · Guest

Hi folks,

Dave noted that Japan was down 1.7% yesterday, but neither of my ETF's
reflected this but were actually UP. Note that this is either due to
Fair Market Pricing, but more likely in the case of ETF's, using ADR's
to determine the correct price.

For those that are unfamiliar with FMP, it's a strategy that some in
the fund industry have adopted to eliminate int'l dateline arbitrage -
datelining, for short.

In the past, you could take a day like yesterday and make a sure profit
by buying an int'l fund late in the day. If you recall, the foreign
mkts were all down sharply, but closed before our market had the late
day reversal. This means that they were unable to reflect this upside
bounce and will do so today. Well, if you were able to buy an int'l
fund before close yesterday, you'd have an automatic gain locked in.
Right? Well, not any more.

The industry has adopted 3 strategies to eliminate this practice. The
original was imposing Early Redemption Fees (ERFs) for selling a fund
before a certain set holding period. Normally, 2% fee for less than
180 days. Other houses, like Vanguard, decide to start using Fair
Market Pricing. This is where when this sort of situation occurs, they
GUESS about what the closing NAV should be and correct it later.
Perhaps the best solution is what Profunds (and perhaps the ETF's) do
and that's simply price their funds based upon ADR prices which means
they're pretty much exact and current at any given time regardless of
the home market being closed.

Now, you can still dateline successfully if you are prudent and choose
your times. First you need a fund that only imposes and ERF and
doesn't use FMP. Second, the interday market swing has to be
significant. Third, you need to planning to establish a position that
you can keep for the required holding period. Note that this last
isn't needed if the swing is sufficient to exceed the ERF.

One thing that a lot of folks don't realize is that you can also
dateline in REVERSE. This occurs when you already have an overseas
position established and the overseas market closes UP while ours takes
a late day blood bath. Ah, you can still dump your overseas fund and
if they're not using FMP, avoid the downdraft.

best,

rono

Flasherly · Guest

Ed wrote:

Ed · Guest

"Flasherly" <gjerrell@ij.net> wrote in message
news:1129814865.049973.246030@g47g2000cwa.googlegroups.com...

Flasherly · Guest

Ed wrote:

Ed · Guest

"rono" <overtonr@cablespeed.com> wrote

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