Equities Trade “DIRTY” – What that Means and Why it Matters

Overview: The purpose of this whitepaper is to educate readers about a flaw in our market structure, that causes income-producing securities to trade “Dirty." Dirty security pricing causes investors to pay inflated values for income-producing securities and then...

FairShares is able to increase the performance of any investment fund that pays a dividend, interest, or capital gain by preventing systemic investor losses associated with the current last holder of record accounting and payment system. Investor losses in investment funds are acknowledged by the industry as “Buying a Dividend” and this fact is disclosed in every investment fund prospectus. Buying a dividend causes investors to 1) overpay for securities and then 2) pay taxes they should not owe.

Therefore, increased investor returns are possible because FairShares prevents these unnecessary losses.

Additionally, the last holder of record system requires a drop in the security’s price on the ex-dividend day. However, in order to drop the price, they must first inflate the price. Otherwise, the fund would trade at a substantial discount to its NAV. Investment managers inflate the price by treating the realized income of the fund as an asset, rather than a payable liability. They are then able to drop the price by the amount of realized income received on the ex-dividend day. This non-GAAP accounting treatment of realized income causes the investment fund to trade at a premium to what the fund is actually worth.  Therefore, investors are buying less of the fund’s underlying securities because of the premium they had to pay. FairShares technology enables a favorable accounting change that properly values a security by treating the realized income as a liability. This favorable accounting treatment of realized income allows investors to purchase more shares with the same amount of capital.

Mutual funds and ETF’s have numerous inefficiencies that are harmful to investors. FairShares technology solves these inefficiencies by allowing investors to keep more of what they earn and to be afforded the opportunity to pay a fair price for each security they buy.

The Bottom Line – FairShares increases the investment returns of any income-producing security by protecting and preventing unnecessary investor losses and by allowing investors to purchase more shares – a result of investor-friendly fair value security pricing. FairShares should be a “must-have” for any investment fund who owes a fiduciary duty to their shareholders.

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Author

Jeremy Roseberry

CEO

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