Exchange Privileges for Mutual funds

bee

Does anyone use exchange privileges for your mutual funds?

What are they?
"The opportunity given to mutual fund shareholders to exchange their investment in a fund for another within the same fund family at no additional cost. This privilege allows investors to switch funds (on the same day) when market conditions change."

How I use the exchange feature:
I try to pair funds that have high and low volatility available from the same fund company.
On days where I have outsized gains in one fund (or sometimes outsized losses) I will use the exchange option to execute a "buy" or a 'sell" between two funds on the same day. For example, Pimco has some high volatile funds (PETDX, PCRDX, PCKDX, etc.) as well as some very low volatile funds (PONDX). Pairing a high volatility funds with low volatility fund and using the exchange feature I am able to reallocate a little more strategically.

Here are some of my exchange pairs:
(Low VX)......(High VX)
MAPIX and MSMLX
OAKBX and OAKEX
USFIX and USAGX

cman

Thx for editing the title to bring @crash out of fetal position.

scott

Occasionally, but it seems to vary from fund family to fund family and I've pretty much stopped because I hate having to write customer service every time I want to do something like that to see if I'll get hit with a short-term holding fee.

hank

Yes. I certainly use the exchange privilege. My funds are directly with the houses so that's mainly how money is reallocated. Occasionally, I'll initiate what's known as an "IRA Transfer" and go from one house to another but not very often.

I do believe you can pick up a little extra by doing what you're doing bee and maybe dampen overall volatility. It is a variation on the "buy low sell high" idea. The pairing I do is pretty far-reaching. Would take a long time to cover. But, one example is to keep international bond funds pretty much in line with commodity & natural resource funds. I see both as hedges against a weak dollar and keep equal weightings of both. However, sometimes the international bonds will get way out ahead and sometimes the commodity-related will get hot. When one gets way out ahead. I trim it and add to the other.

Virtually all fund houses have restrictions of one type or another against frequent trading - as I'm sure you're aware. Some like Price are very good at spelling out the policy in their prospectus which I read diligently. But, suffice it to say that they all frown on "round trips" within a 30-90 day period (depending on the house). That occurs when you sell fund "A" to buy fund "B" and than move the $$ back into fund "A" again - completing the round trip. Price now bars you from buying a fund you have sold (even partially) within 30 days (with the exception of money market funds and their ultra-short). Oppenheimer, on the other hand, bars you from selling any fund you have purchased within 30 days. However, Oppenheimer appears to have softened that policy recently - at least as it pertains to selling shares of money market funds.

I keep a log of these transactions and am always surprised how they add up over the course of a year. So far, no issues with any of the custodians (in my case that's a wonder!). While their rhetoric stresses their desire to protect investors from the excessive operating costs such transactions contribute to, I'm more inclined to believe it's mostly CYA - a consequence in part of Spitzer and other regulatory watch dogs in recent years.

Regards