What is a dilution adjustment?
Under certain circumstances a dilution adjustment is applied to the price of Invesco Perpetual’s ICVCs to protect existing shareholders from the impact of costs related to dealing resulting from subscription and/or redemption activities by other shareholders.
Please read our guide, dilution adjustment explained for a detailed explanation of this term.
Our Invesco Perpetual ICVCs are single priced funds valued on a mid-market basis.
When there are net subscriptions into a fund, additional underlying investments may need to be bought by the fund manager. When there are net redemptions, underlying investments may need to be sold within the fund to pay for those redemptions. These underlying security transactions are dealt at prices other than the mid-market price due to the dealing spread and also incur dealing costs (for example commissions and transfer taxes).
The dealing spread on the underlying investments (or bid/offer spread) is the difference between the price at which the fund manager can sell (bid) and the price at which the fund manager can buy (offer). The dealing spread and costs can act to reduce (or "dilute") the value of the fund for the existing shareholders.
In order to mitigate this dilution impact for the existing shareholders, we ensure that the price is set at the appropriate level each day; we achieve this by calculating the mid-market price and then, if necessary, applying a "dilution adjustment" that is equal to the impact of the dealing spread plus associated costs.
Our dilution adjustment policy always ensures that when there is a large net inflow or outflow of fund shares on any dealing day, the share price is adjusted up (to offer) or down (to bid) to offset any dilution. This movement to either offer or bid from the mid-price is carried out in order to protect the value of the shares of the existing shareholders in the fund.