New Patented Algorithm Corrects Pricing Problem and Also Curtails Short-Term Traders
Academic Research Paper Reveals Unfair Mutual Fund Pricing
BOYNTON BEACH, Fla., Jan. 4, 2012 (GLOBE NEWSWIRE) -- Sacks Equalization Model Inc. announced the initial marketing and licensing of a groundbreaking computer program to the mutual fund industry. According to a recently released research paper, the model, when implemented, corrects the long-held but shockingly inequitable pricing of mutual fund shares that is costing existing shareholders at least $10 billion a year.
"This program - Sacks Equalization Model - would revolutionize the way that mutual fund shares are calculated and is estimated to save shareholders billions of dollars a year," says Seymour Sacks, the inventor of the model.
Under current practices, new purchasers of shares and liquidating shareholders have an unfair price advantage over existing shareholders. This is because existing shareholders get stuck with paying all the stock brokerage fees to cover the ongoing buying and selling of portfolio securities by the mutual funds.
When mutual funds price their shares, they allow new investors who are purchasing mutual fund shares, or existing shareholders who are liquidating shares, to get away without paying their portion of the stock brokerage fees that were accumulated by the prior trading of the mutual funds' portfolios. These new investors and liquidating shareholders are getting a "free ride" and unfairly transferring their costs to existing shareholders, who are usually long-term investors.
The Sacks Equalization Model (SEM) levels the financial playing field by eliminating the price advantage that liquidating and purchasing shareholders currently have over long-term investors.
The software program uses a patented algorithm to correct this unjust financial practice that costs existing shareholders an estimated $10 billion a year.
Those shocking figures are supported in a recently released research paper called, "A New Method for Computing Mutual Fund NAV in Light of Liquidity-Induced Transaction Costs."
The paper, by Professor Miles Livingston of the University of Florida, and Professor David Rakowski of Southern Illinois University Carbondale, estimates the annual cost to existing equity mutual fund shareholders of at least $5.7 billion and much higher if you include all mutual funds.
Professors Livingston and Rakowski write that the elegance of the Sacks Equalization Model is that trading by short-term shareholders is not subsidized, nor are investors with liquidity needs punished. Each investor pays exactly the cost imposed on the fund by their trading. With the Sacks Equalization Model, the long-term shareholders are not penalized by inflows or redemptions. In addition, the incentives for traders to use mutual funds as trading vehicles would be dramatically reduced.
SEM also creates better cash management by reducing intangible costs to the mutual funds and encouraging more efficient portfolio balancing.
SEM is completely fair and simply makes financial sense for everyone involved.
"Frankly," says Sacks, "I think every mutual fund has an obligation to its shareholders to adopt the Sacks Equalization Model. To leave things the way they are would be a gross injustice."
For additional information visit the Website: www.sacksmodel.com or call (800) 792-1826.