Trying to understand how a "margin change" can reduce my holdings. Any help?
My 401K is invested in institutional funds, which ING Retirement sells to me, through 401K deductions, at market rates they determine (I cannot view these NAVs independantly). But under the flag of a term called "margin change" they have revalued my units (shares) higher and reduced the number that I own. Somehow that seems wrong. Can someone explain what has happened?
Public Comments
- It's very possible that the value of your shares has in fact increased but they have made a margin call.
- Margin is the money you borrow from the institution to invest in the mutual fund. The maximum you can borrow is 50% of your investment, which allows you to invest 150% instead of 100% of your money. But the institution that lends you the money reserves the right to reduce your margin at any time from 50% to some smaller percentage. And they usually do this when they become concerned about increased risks of stock market losses for your account. With recent market volatility, the risks of loosing money on the stock market have increased. And that's probably why they've reduced your margin and sold off some of your holdings. When you open your investment account, then you have to sign a lot of papers. And fine print in those papers says that you agree to let them do things like that with your account.
- One possibility is that the funds are "bond funds" invested in fixed income securities rather than shares, or have a large component of such securities. If expectations are that interest rates (i.e. margin) will increase, this would result in a fall in the market value of the bonds, the amount of the fall being dependent on the average "duration" of the portfolio, i.e. the sensitivity of the portfolio to changes in interest rates. If this is not the case, phone up ING to find out the reason.
