What affects a unit trust bid offer spread?
The extent of the bid offer spread depends on the number of buyers and sellers. If the two broadly cancel each other out then the manager can simply pass units from sellers to buyers, avoiding the need to create or cancel units. The spread should be pretty static and not much higher than the initial charge. If there’s far more sellers than buyers and the manager needs to cancel units, the bid price will fall to the cancellation price and widen the spread. If there’s far more buyers than sellers and the manager needs to create units, the offer price will rise to the creation price plus the initial charge and widen the spread. In the case of oeics the manager cannot alter the spread because the buy/sell price must be the same. They instead have the option to impose a ‘dilution levy’ when there are far more sellers than buyers and vice-versa. If they didn’t do this then the other unit holders would bear the brunt of the costs of creating or cancelling units, which would be unfair.
