Fair value is of particular importance amid the heightened market volatility, according to a new report from Interactive Data Corp. This is particularly true of international equities, the firm said, basing its findings on a survey of fund companies.
“The heightened level of volatility in the market draws attention to the importance of fair value practices for mutual fund investing in international equities,” said Rob Haddad, director of evaluated services for Interactive Data. “Our survey found that mutual funds are generally well-prepared for volatile market scenarios, with predefined fair value procedures in place to handle such events, and formal back-testing processes to examine how these procedures worked in practice.”
Today, 36% of the fund companies that Interactive Data surveyed said they employ fair value practices daily, up from 10% in 2004. The remaining 64% employ fair value when benchmark indexes, most notably the S&P 500 Index, hit pre-set triggers.
A full 92% said they systematically back test performance data.