Year end distributions - 2005

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Year end distributions - 2005

Postby Shakespeare » 28 Oct 2005 13:20

It's that time of year again.

CIBC Year End Estimates
Feel free to add others as they show up. :wink:
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Postby randomwalker » 28 Oct 2005 20:35

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
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Postby Bylo Selhi » 28 Oct 2005 20:59

randomwalker wrote: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 ;)
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Postby pitz » 30 Oct 2005 18:18

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.
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Postby Bylo Selhi » 10 Dec 2005 09:38

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.
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Postby smelly » 10 Dec 2005 09:51

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.
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Postby pitz » 10 Dec 2005 14:21

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.
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Postby adrian2 » 10 Dec 2005 14:31

pitz wrote: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%.
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Postby saylavbda » 10 Dec 2005 16:09

pitz wrote: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.
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Postby adrian2 » 10 Dec 2005 16:13

saylavbda wrote: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.
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Postby geckoh » 11 Dec 2005 01:45

Bylo Selhi wrote: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.
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Postby smelly » 11 Dec 2005 10:30

Gordo could always buy a fund that pro-rates distributions. Like, um... I don't know... Optima?
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Postby DanH » 11 Dec 2005 10:57

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Postby Norbert Schlenker » 12 Dec 2005 00:56

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
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Mackenzie Univ Wld Prec Metal Cap (MFC1042)

Postby MidniteGardener » 21 Dec 2005 10:39

Mackenzie distributions

Wld PM Cap
Capital gains paid annually in February or March; if required.
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Postby DenisD » 22 Dec 2005 22:30

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Postby yielder » 23 Dec 2005 21:30

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.
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Postby Catablanca » 23 Dec 2005 23:07

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?
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Postby yielder » 24 Dec 2005 05:48

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


December 23.
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Postby Catablanca » 24 Dec 2005 13:29

Yikes! :oops:
I happen to notice that the distributions were published in this morning's (Dec. 24) Globe and Mail. Thanks anyway for the info.
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TD funds in Globefund drop NAV days before distribution

Postby gossg » 25 Dec 2005 01:24

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?
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Re: TD funds in Globefund drop NAV days before distribution

Postby adrian2 » 25 Dec 2005 07:50

gossg wrote: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.
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Postby like_to_retire » 25 Dec 2005 11:06

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.

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Postby gossg » 27 Dec 2005 01:52

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".
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Postby DanH » 27 Dec 2005 10:24

yielder wrote: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.
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