Equity

Common stock carries voting rights and a residual claim on assets and earnings after creditors and preferred holders. Preferred stock usually has priority for dividends and liquidation proceeds, and may be cumulative, convertible or redeemable. Funds hold listed equities, depositary receipts (ADRs and GDRs), exchange-traded funds, and private company shares in venture and private equity portfolios. Equity exposure can also be taken synthetically through total return swaps, CFDs, options and index futures.

Listed equity trades settle through central securities depositories; the US and several other markets moved to T+1 settlement in 2024, while many markets remain on T+2. Short positions are borrowed through a prime broker and incur borrow fees and dividend-in-lieu charges.

How funds account for equities. Listed shares are carried at fair value, usually the official closing or last traded price on the primary exchange (Level 1). Dividends are accrued on the ex-date, net of withholding tax where no reclaim is expected, with reclaimable tax tracked as a receivable. Private company shares are valued under the fund’s valuation policy using methods such as recent financing rounds, comparables or discounted cash flows, typically as Level 3.

Pitfalls. Equity operations are dominated by corporate actions: splits, spin-offs, mergers, rights issues, tender offers and elections must be captured on time and reconciled to the custodian. Frequent errors include dividends booked on pay date instead of ex-date, missed withholding tax reclaims, stale prices on suspended or thinly traded stocks, and cost basis not adjusted after corporate actions.