Year end distributions - 2005

[Shakespeare]

It's that time of year again.

CIBC Year End Estimates
Feel free to add others as they show up.

[randomwalker]

given that there are no "free rides" in the market, or at least none this obvious, what is the method in place to stop the purchase on or just before "the date of record" thus allowing the trader to capture the year end distribution, especially in a tax defered account? For example at $3.10 the distribution on the CIBC Energy fund is just over 8.5% on today's unit price of $36.14

thanks

[Bylo Selhi]

given that there are no "free rides" in the market, or at least none this obvious, what is the method in place to stop the purchase on or just before "the date of record" thus allowing the trader to capture the year end distribution, especially in a tax defered account?

The NAV gets adjusted down by the amount of the distribution so you're no further ahead. You have the same number of units, each worth a little less, plus some cash. If you reinvest distributions then you'd have more units but each would be worth a little less. The market value of your position remains unchanged.

In a registered account there's no tax impact.

In a taxable account you've just received some income and/or crystallized a capital gain and will have to pay some tax in April. So go ahead and make CRA's day

[pitz]

One trick, if you are in index funds and a taxable account is to sell the annual-dividend index fund before its payout date, and purchase the equivilant ETF. Especially if one is in a loss position.

Not only that way do you avoid 3/4ths of a years worth of dividends being paid as 'dividends', but you also get to crystallize a capital loss and get yourself out of expensive MER index funds to begin with and into ETF's.

An effective strategy, especially when the indicies got slaughtered a few years back.

[Bylo Selhi]

The December distribution dilemma [Financial Post, 10Dec05]

To buy or not to buy? That is the question often posed by mutual fund investors in December, fearful of buying funds in a non-registered account and then being forced to prepay tax on "someone else's gains." As a result, the conventional wisdom often posited in investor-oriented financial newsletters and Web sites is, don't buy mutual funds in December -- or at least don't buy before the fund's distribution date. Before heeding their advice, let's take a closer look at the mathematics of distributions to try and quantify the actual cost of this tax prepayment...

See also Decoding tax bill for year-end pay-outs.

[smelly]

Isn't this whole issue kind of much ado about nothing if you're a long term investor? It'll be an insignificant event, ROR-wise, 20 years from now.

[pitz]

Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.

Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.

[adrian2]

Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.

Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.

That's not entirely true. 4% is not a loss, it's a pre-payment of tax. Of course it's better to defer, and capital gains taxes are lower, but the present value of the future tax liability is not zero. So maybe it's a comparison between 4% and 1%, not between 4% and 0%.

[saylavbda]

Smelly, lets say you bought XIN (the iUnits International mutual fund). It gives a 10% distribution in income this year. If you are in a 40% tax bracket, wham, 4% of your principal investment dissappears into the ether of the tax system.

Obviously the more capital you have working for yourself, the better off you will be. Many of us, by choice, or necessity, invest heavily in taxable portfolios. Losing 4% is a pretty big deal, especially if its not due to the underlying investments, but rather taxes.

Isn't this the Iunit that was designed for RSP accounts. Given the taxable nature of the structure, why would someone hold it in a non-reg. account. There are better options. So the point, while true, is not the main problem, poor portfolio construction is.

[adrian2]

Isn't this the Iunit that was designed for RSP accounts. Given the taxable nature of the structure, why would someone hold it in a non-reg. account. There are better options. So the point, while true, is not the main problem, poor portfolio construction is.

Exactly.

[geckoh]

The December distribution dilemma [Financial Post, 10Dec05]

Thanks for the link Bylo.

Every year Gordon Pape issues dire warnings about purchasing funds in Nov-Dec. His QA this week is no exception.

In the FP article, the fund paid out a 5% of NAV distribution, and the results was "the cost of an eggnog latte" on the year for a $10k investment. Pape's example was 9% of NAV.

Better to have the lattes I guess, but I do worry about the "market movement" argument made at the end of the FP article - especially if one is to wait from November.

For disclosure I am actually sitting on a little cash right now waiting, as doing so seems to be the prevailing wisdom. I guess I should also buy myself a latte sometime over Christmas.

[smelly]

Gordo could always buy a fund that pro-rates distributions. Like, um... I don't know... Optima?

[DanH]

Year-end distributions

[Norbert Schlenker]

Vanguard's estimates

Some selected VIPERs' income distributions (no capital gains distributed):

VTI - $0.50
VXF - $0.98
VGK - $1.34
VPL - $0.90
VWO - $1.01

[MidniteGardener]

Mackenzie distributions

Wld PM Cap

Capital gains paid annually in February or March; if required.

[DenisD]

The iShares® Funds Announce Zero Year-End Capital Gains Distributions for Entire Fund Family

[yielder]

PH&N Dividend Income-A has announced a distribution

Effective Date: 23-Dec-2005

Income: .201068
Cap Gains: 2.392745
Total: 2.593813
Total for the year: 2.9538

That's 3.3% on the 12/23 NAV. OK in a tax deferred account. Not so OK in a taxable account.

[Catablanca]

Greetings!
Has anyone noticed that there have been no reports concerning distributions for RBC mutual funds? I've always thought that their distributions take place at or near December 21. Does anyone know what's going on here?

[yielder]

I've always thought that their distributions take place at or near December 21.

December 23.

[Catablanca]

Yikes!
I happen to notice that the distributions were published in this morning's (Dec. 24) Globe and Mail. Thanks anyway for the info.

[gossg]

Nor the sixth year in a row, I panicked over a TD fund in Globefund. I haven't noticed this effect in other brands -- I guess they are probably similar.

TD's e-fund for US Index RSP fell by 7.5% today. I immediately jumped back to the Globeinvestor Gold front page to see what killed the US market. Nothing. Then I remembered the similar panic every previous year.

I've probably had it explained to me, but I don't remember it. My funds are all set to cumulate distributions back into holdings. Is there a reason why the NAV drops several days before the distribution arrives and pumps the value back to where it started?

[adrian2]

I've probably had it explained to me, but I don't remember it. My funds are all set to cumulate distributions back into holdings. Is there a reason why the NAV drops several days before the distribution arrives and pumps the value back to where it started?

This would make sense for a stock which goes ex-dividend, say, on 15-Dec, while the dividend is payable a few weeks later. AFAIK, this is not the case with most mutual funds, including TD's.

The only reason for what you see is (temporarily) incorrect information fed into TD Waterhouse's computer. You should have seen the number of units you own go up on the day of the distribution.

[like_to_retire]

You should have seen the number of units you own go up on the day of the distribution.

But actually it never happens that way with TD.

The distribution cash is removed during the day and then the NAV is valued at the closing and shows the drop.

Then the next business day, the new units that are DRIP'd show in your account, and then it's a wash.

oops, it's time to go fill my face with turkey, merry christmas.

ltr

[gossg]

And TD always seems to do this the last business day before Christmas, so that the desperately lower NAV sits there glaring for several days until "next day".

[DanH]

PH&N Dividend Income-A has announced a distribution

Effective Date: 23-Dec-2005

Income: .201068
Cap Gains: 2.392745
Total: 2.593813
Total for the year: 2.9538

That's 3.3% on the 12/23 NAV. OK in a tax deferred account. Not so OK in a taxable account.

But for the YTD, that 3.3% is only about 28% of the 11.6% total return (through Nov 30). And it's probably less than that since your 3.3% figure implies a fairly nice return since Nov 30. After a great three year run, I would not complain about a 3% taxable distribution - particularly when only about 1.6% is the actual percentage of taxable distributions.

Hey, you can always go back to 2002, when few funds handed out distributions - and just as few made much money for investors. I'll gladly pay a bit of taxes.