Thread: I Fund - FAQ

Originally Posted by Nimrod1193

I apologize if this has been asked before, but I am confused as to the relationship between the EFA and I-Fund. If the closing price in the I-Fund is +.43%, but EFA closes +1.2%, do the gains that occurred after the closing price is finalized carry over to the next trading day?

No, it's funny you asked because was I just about say something about it. The EFA is just an ETF(exchange traded fund) of the EAFE. It gets traded through out the day along with the US market. It is not the same thing as our I fund, which is based on the MSCI EAFE. Unfortunately, there is no index that we can track for our I fund.

As for the 1.2% so far today, all I'll say is that, if I was trading this ETF, I'ld be selling it at the close to take profit. I would not be surprise if the EFA opens way down on Monday morning.

so my assumption this morning was correct that there is a -FV?

Originally Posted by VirginiaBob

so my assumption this morning was correct that there is a -FV?

No, No -FV. It appears that you still don't understand the relationship between the EFA and our I fund. That might be because there's is no relationship. If you can tell me what you think you know about the I fund, perhaps I can explain it further.

Originally Posted by 350zCommTech

No, it's funny you asked because was I just about say something about it. The EFA is just an ETF(exchange traded fund) of the EAFE. It gets traded through out the day along with the US market. It is not the same thing as our I fund, which is based on the MSCI EAFE. Unfortunately, there is no index that we can track for our I fund.

As for the 1.2% so far today, all I'll say is that, if I was trading this ETF, I'ld be selling it at the close to take profit. I would not be surprise if the EFA opens way down on Monday morning.

Thanks for the clarification.

The EAFE, EFA, I Fund, and Fair Value (FV):

The I-fund is comprised of shares purchased from the MSCI EAFE. The I-fund and the EAFE are exactly the same thing except a little TSP magic which converts one into the other. The price of both are directly calculated based on the value of component stocks.

The EFA is a publicly traded fund which holdings are designed to mirror the EAFE, but the price is subject to buying a selling pressure just like any stock and therefore, speculation causes it to change. Please note that this speculation is the same speculation that is driving the rest of the US markets and currency markets and is usually loosely proportional (but not related too) an FV when it does occurr.

Going back to the EAFE and the I-fund, this is where the FV comes from. Around 3:00 (EST) MSCI Barra posts a price of the EAFE based upon the closing prices of the overseas stock markets, which all close a 12:00 pm EST. MSCI Barra's price is based upon the world's stock market at 12:00 pm EST. Sometime after the US markets close, probably around 6:00 pm EST, TSP purchases (or sells) EAFE shares to support the holdings of the I-fund. The price paid by TSP at this time can be slightly different then the price posted by MSCI at 3:00 because of large fluctuations in market momentum and currencies that may have occurred between 12:00 pm EST and the close of US markets. This difference is what causes the FV and why only actions that occurr after 12:00 PM EST can cause an FV.

Griffin,

That was an excellent explaination on the EFA/I fund. Could you put it in a thread of its own and lock it up? You can maybe call it "Differences between I fund and EFA". We can then point to it the next time somebody ask this question.

Originally Posted by Griffin

VirginiaBob,

Don't feel bad, this question gets asked about every 4 months. It is a good chunk of why this thread is 4 zillion posts long.

The I-fund is comprised of shares purchased from the MSCI EAFE. The I-fund and the EAFE are exactly the same thing except a little TSP magic which converts one into the other. The price of both are directly calculated based on the value of component stocks.

The EFA is a publicly traded fund which holdings are designed to mirror the EAFE, but the price is subject to buying a selling pressure just like any stock and therefore, speculation causes it to change. Please note that this speculation is the same speculation that is driving the rest of the US markets and currency markets and is usually loosely proportional (but not related too) an FV when it does occurr.

Going back to the EAFE and the I-fund, this is where the FV comes from. Around 3:00 (EST) MSCI Barra posts a price of the EAFE based upon the closing prices of the overseas stock markets, which all close a 12:00 pm EST. MSCI Barra's price is based upon the world's stock market at 12:00 pm EST. Sometime after the US markets close, probably around 6:00 pm EST, TSP purchases (or sells) EAFE shares to support the holdings of the I-fund. The price paid by TSP at this time can be slightly different then the price posted by MSCI at 3:00 because of large fluctuations in market momentum and currencies that may have occurred between 12:00 pm EST and the close of US markets. This difference is what causes the FV and why only actions that occurr after 12:00 PM EST can cause an FV.

I nominate Griffin for one Gold Star.

Best compact description of the I-Fund workings I've read!

Originally Posted by Griffin

VirginiaBob,

Don't feel bad, this question gets asked about every 4 months. It is a good chunk of why this thread is 4 zillion posts long.

The I-fund is comprised of shares purchased from the MSCI EAFE. The I-fund and the EAFE are exactly the same thing except a little TSP magic which converts one into the other. The price of both are directly calculated based on the value of component stocks.

The EFA is a publicly traded fund which holdings are designed to mirror the EAFE, but the price is subject to buying a selling pressure just like any stock and therefore, speculation causes it to change. Please note that this speculation is the same speculation that is driving the rest of the US markets and currency markets and is usually loosely proportional (but not related too) an FV when it does occurr.

Going back to the EAFE and the I-fund, this is where the FV comes from. Around 3:00 (EST) MSCI Barra posts a price of the EAFE based upon the closing prices of the overseas stock markets, which all close a 12:00 pm EST. MSCI Barra's price is based upon the world's stock market at 12:00 pm EST. Sometime after the US markets close, probably around 6:00 pm EST, TSP purchases (or sells) EAFE shares to support the holdings of the I-fund. The price paid by TSP at this time can be slightly different then the price posted by MSCI at 3:00 because of large fluctuations in market momentum and currencies that may have occurred between 12:00 pm EST and the close of US markets. This difference is what causes the FV and why only actions that occurr after 12:00 PM EST can cause an FV.

Wow! Thank you, Griffin. This is the most clear and concise explanation I have seen to date and really demuddles my grasp of this concept. Of course it raises more questions as well...

Who actually determines the price per share at 6PM EST? The "Market," the TSP administrators, or "MCSI Barra?" And who is/are MSCI Barra, and who is Barclays? Are they the same? Are they the EAFE index fund (I fund) managers?

Maybe someof these questions can be answered in the new thread...

That raises another question. Why doesn't the TSP simply purchase or sell the necessary shares when the overseas markets close at 12:00 EST?

Originally Posted by Nimrod1193

That raises another question. Why doesn't the TSP simply purchase or sell the necessary shares when the overseas markets close at 12:00 EST?

I think to pull this off they would probably have to move the deadline for submitting our transactions from 1200 EST to around 0600 EST. I think the extra 6 hours every day is worth the occassional unpredictable FV.

Originally Posted by qibovin

Who actually determines the price per share at 6PM EST? The "Market," the TSP administrators, or "MCSI Barra?" And who is/are MSCI Barra, and who is Barclays? Are they the same? Are they the EAFE index fund (I fund) managers?

Think of it this way. MSCI is Morgan Stanley Capital Investments. They created the EAFE Index, which is not a fund. (Just like the S&P 500 is an index. You couldn't buy it until recent years when funds were created with the exact same components as the index). Barclays created the fund based on the index. Barclays is therefore the manager and they set the price. That price is usually what the index would indicate, unless Barclays applies the fair valuation (FV) process.