The Purchasing Power Fund: A New Kind of Financial Intermediary

Nils H. Hakansson

Financial Analysts Journal, 32, November-December 1976, 49-59.

This article introduces a fundamentally new kind of intermediary (called a purchasing power fund) offering a fundamentally new kind of financial instrument (called supershares). Supershares differ from all previously issued financial instruments in that (1) they provide a payoff only for a prespecified level of the market return over the period between issue and maturity and (2) the payoff can be denominated in real (i.e., deflated) terms.

The underlying assets of the fund are managed like an index fund. The range of possible outcomes, expressed as a return on the initial value of the assets, in finely divided, and a particular kind of supershare assigned to each division. On the maturity date the supershare corresponding to the actual outcome pays off; the others become worthless.

By purchasing the appropriate mix of various kinds of supershares, an investor can purchase the equivalent of a mutual fund share, a purchasing power bond, a levered position in a mutual fund, a short position in a mutual fund, a call or a put-and all without borrowing either shares or money.

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