Historic Pricing: What It Means and How It Works

Historic pricing is a valuation method that uses the most recently calculated net asset value (NAV) to price an asset. It’s commonly applied to investments whose values aren’t updated continuously in real time, such as many mutual funds.

Key takeaways

• Historic pricing uses the last calculated valuation (the valuation point) to determine share/unit prices.
• It lets buyers and sellers know exactly how many shares a given dollar amount will buy—provided they transact at that valuation point.
• The main risk is stale pricing: the NAV used may not reflect market moves that occur after the last valuation.
• Forward pricing, which applies the next calculated NAV to orders, is more commonly used for open-ended mutual funds.

How historic pricing works

Assets that don’t update continuously are assigned a valuation at specific times (valuation points). Historic pricing uses the most recent of these valuations when calculating the price buyers pay or sellers receive. If an investor trades exactly at the valuation point, the price reflects current calculations; if they trade before or after, they are effectively trading on an older valuation.

Mutual funds typically calculate NAV at the end of the trading day. Under a historic-pricing approach, the last calculated NAV is used for transactions until the next valuation is posted.

Risks and investor implications

• Stale NAV risk: Market movements between valuation points can make the last NAV outdated. A buyer might pay more if the NAV falls after the valuation; a seller might receive less if the NAV rises after the valuation.
• Certainty vs accuracy trade-off: Historic pricing provides certainty about how many shares a given amount will purchase (because the valuation point is known). However, that certainty can come at the cost of accuracy relative to current market conditions.
• Timing matters: For assets priced intermittently, understanding when valuation points occur helps investors know whether their orders will use the most recent NAV or an older one.

Forward pricing vs historic pricing

Forward pricing is the prevailing method for open-ended mutual funds. Under forward pricing, buy and sell orders are executed at the NAV calculated at the next valuation point (for example, the next market close). This means:
* Orders reflect changes that occurred since the previous valuation, making prices more current.
* Investors placing orders don’t know the exact number of shares they will receive until the next NAV is published.

In contrast, historic pricing uses the last calculated NAV, giving immediate clarity on share quantities but risking divergence from up-to-date market values.

Practical considerations for investors

• Check the fund’s valuation policy to know when NAVs are calculated and whether orders are executed on a forward or historic basis.
• For intraday trading needs, consider exchange-traded funds (ETFs) or other instruments that price in real time.
• Be mindful of order timing around known valuation points (e.g., market close) to avoid unintended exposure to stale NAVs.

Conclusion

Historic pricing provides predictable share quantities based on the last valuation, but it can leave investors exposed to stale prices. Understanding a fund’s valuation schedule and the difference between historic and forward pricing helps investors choose the most appropriate vehicle and timing for their trades.