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...

The purpose of this article is to examine ten potential ways that investors can earn higher returns by investing in an investment fund that uses FairShares’ technology.  FairShares investors will realize these benefits 1) on their initial purchase, 2) on each subsequent reinvestment of dividends and interest paid to the investor and, 3) upon the sale of the securities.

  1. Before and after-tax investment returns will increase because investors are not subjected to buying a dividend.
  2. FairShare investors will never pay inflated values for the securities they purchase.
  3. Fair security pricing allows investors to purchase more shares with the same amount of capital.
  4. The yield realized by the investors will increase because they are able to buy more shares.
  5. Risk-adjusted returns and tracking error improve.
  6. ALL investors earn dividends – everyone who owns a FairShare investment fund receives income every single day they hold the investment fund, even if they sell before the ex-dividend date. Under the current last holder of record system, sellers receive no income.
  7. Sellers of FairShare securities who hold securities for longer than 60 days and less than a year can generate a 33% higher yield upon the sale of the security.
  8. Qualified investors return in a FairShare fund will be much closer to their benchmark return, especially for index funds, and will do so on a consistent basis. Traditional funds that accrue income to the fund’s NAV have, on average, about a 50% chance of underperforming their benchmark.  This underperformance is because income flows into the fund inconsistently and randomly.  With FairShares, income received by the investment fund is pooled and allocated to investors evenly and consistently, which ensures investors a better benchmark return.
  9. FairShares net asset value (ie, the price) will not drop by the amount of the dividend on the ex-dividend day. No drop in the net asset value is necessary because a FairShare investment fund will always trade at its fair value and never trade at a premium. This reduction in volatility results in improved risk-adjusted returns.
  10. Since FairShares investors earn income every day, a real-time calculation of income owed to the investor can be performed. This income earned can be included in the investor’s margin calculation, and the investor can use this additional margin to buy additional shares in real-time.  This process is equivalent to reinvesting dividends every day, which compounds money faster and increases yield when compared with reinvesting dividends quarterly.

FairShares could very well claim to have a great product if it produced just one of these ten benefits.  Is there any reason your investment managers would not want to provide their shareholders with the option to buy a fund powered by FairShares?  With FairShares, everyone wins.

Follow us on Twitter @BuyFairShares as well as on LinkedIn.  By joining the FairShares movement, you can participate in building a better investment world (and retire with more money too!)


Jeremy Roseberry


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