Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
I own FSIVX, PRDGX, and VDIGX, which I want to sell because of their poor performance compared to their peers. They will all result in LT capital gains however, and I used up my LT capital loss carryover last year. Are there any advantages to selling before the ex-dividend date, or should I just collect the distribution and sell in the future?
It really depends in part on your tax bracket and how close you are to critical levels such as $250k for married $200k for single. Check this link for more info on that issue http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-FAQs Another factor to check out is the probability you will owe money to the Alternative Minimum Tax because of large capital gains. (small gains probably won't affect this)
\Obviously if you sell your entire position in one or more of these funds you will have a higher income and amount of "investment income " than you would if you just took distributions (presumably since you don't like the performance you will not be reinvesting the dividends.. If you are close to critical levels such as the ACA surcharge levels or the much lower levels where tax brackets for capital gains change you should do the careful calculation to determine your best action..All things being equal and given that we are near the end of the year it is likely that a good option (not necessarily the best)would be to sell one fund before distribution but only the shares on which you have a long term gain(because the distribution will include dividends taxed at a higher rate). Once you get into the new year you can reconsider the situation. One minor value in putting things off is that the market is likely (because it usually does) go up in the months at the end of a year.
Jerry is addressing the question of whether to liquidate completely (and implicitly, this year or across multiple years). That's because of extra taxes/higher rates that could kick in.
Edit: Upon rereading, I see Jerry largely addressed the item I also discussed below:
Let me address a slightly different question - assuming you are going to liquidate this year, do you do that before or after dividends? Simple rule of thumb: liquidate all your long term shares before distributions. Short term shares are (usually) better liquidated after distribution.
For example, suppose you have a LT share purchased at $100. It's now priced at $110. Suppose also that the distribution is going to be $3 LTG, $2 ord income. The price will drop to $105.
Sell before distribution and you have $10 LTG. Sell after, and you realize a $5 LTG. But you've also got a $3 LTG distribution, and $2 in ord income. That $10 realized LTG is better than the $8 LTG ($5 + $3) and $2 ordinary income.
The reasoning on the short term shares is the same, just backward. You're usually worse off realizing STG than getting the some of those gains as LTG distributions and some as ord income.
Addendum: If you are liquidating, it's usually better to not use average cost. That's because long term shares (which are taxed at a lower rate) usually cost less than shortterm shares. That's good - a bigger chunk of your gain is attributable to long term shares.
But if you average the costs, some of the LT gain gets shifted to ST gain. That's just the way the arithmetic works if the long term shares were cheaper.
If you're currently using average cost, this is a switch that has to be made in writing to the broker (for "covered shares", i.e. shares purchased after 2011), and can't be made on the day of the trade. Check with your broker/fund and get the paperwork done now.
Simple rule of thumb: liquidate all your long term shares before distributions. Short term shares are (usually) better liquidated after distribution.
It looks like FSIVX will be the only fund distributing unqualified dividends, and we're not talking large sums of money, but the advice is sound and will save me some taxes. Thanks again.
Bilvihur, Before you sell these, I would check your figures again regarding your statement of underperformance. VDIGX and PRDGX are dividend growth funds, which always slightly underperform the S + P. But they do outperform the S + P in downturns, thereby have less risk and volatility. I own VDIGX and am very familiar with PRDGX, both these funds are worth keeping IMHO. Their benchmark is large cap blend, not the S + P, and more often than not they exceed their benchmark. FSIVX also more often than not beats its benchmark foreign blend. JMHO
I know this will open the apples & oranges benchmarking can of worms, but I got my info from the WSJ Quarterly Mutual Fund tables which are created by Lipper. The 3 funds had C and D ratings over the last 3 years. If there are better performance comparisons I will gladly look at them. Thanks.
I know this will open the apples & oranges benchmarking can of worms, but I got my info from the WSJ Quarterly Mutual Fund tables which are created by Lipper. The 3 funds had C and D ratings over the last 3 years. If there are better performance comparisons I will gladly look at them. Thanks.
Not to sound like a broken record, but it depends what you want the funds to do in your portfolio and what your risk tolerance is.
Both of the dividend funds are indexed to the NASDAQ Dividend Acheivers Index. I think they're both outperforming that, but that index isn't going to keep up with the bull market we've had. If you go back and compare to the S&P they are going to look mediocre over the last 1, 3, and 5 years.
FSIVX's problem is that it's an index in markets that are lagging. That's when indices look bad. It will lead the way when developed markets come back. Bill Bernstein had some name for the phenomenon which I can't remember.
To your original question, concur with msf and Jerry above. If these are in a taxable account, sell before distribution to avoid cost basis problems. If qualified, doesn't matter one bit.
Bilvihur, My comparisons were from Morningstar, I know there are numerous sources for such comparisons, was just referencing one different than the one you used. You can always find evidence to support your gut feelings if you research enough, thats why you hear the the term analysis paralysis so much
I know this will open the apples & oranges benchmarking can of worms, but I got my info from the WSJ Quarterly Mutual Fund tables which are created by Lipper. The 3 funds had C and D ratings over the last 3 years. If there are better performance comparisons I will gladly look at them. Thanks.
Why not use the Lipper ratings directly instead of using the munging that WSJ contracted Lipper to do?
Three year ratings for VDIGX are 4/4/5/5/5 (Total return/consistent/preservation/tax/expense)
Why not use the Lipper ratings directly instead of using the munging that WSJ contracted Lipper to do?
I would hope that Lipper is not fudging the numbers for the WSJ, but rather presenting a streamlined performance comparison from their more complete fund ratings.
Why not use the Lipper ratings directly instead of using the munging that WSJ contracted Lipper to do?
I would hope that Lipper is not fudging the numbers for the WSJ, but rather presenting a streamlined performance comparison from their more complete fund ratings.
Comments
Another factor to check out is the probability you will owe money to the Alternative Minimum Tax because of large capital gains. (small gains probably won't affect this)
\Obviously if you sell your entire position in one or more of these funds you will have a higher income and amount of "investment income " than you would if you just took distributions (presumably since you don't like the performance you will not be reinvesting the dividends.. If you are close to critical levels such as the ACA surcharge levels or the much lower levels where tax brackets for capital gains change you should do the careful calculation to determine your best action..All things being equal and given that we are near the end of the year it is likely that a good option (not necessarily the best)would be to sell one fund before distribution but only the shares on which you have a long term gain(because the distribution will include dividends taxed at a higher rate). Once you get into the new year you can reconsider the situation. One minor value in putting things off is that the market is likely (because it usually does) go up in the months at the end of a year.
Edit: Upon rereading, I see Jerry largely addressed the item I also discussed below:
Let me address a slightly different question - assuming you are going to liquidate this year, do you do that before or after dividends? Simple rule of thumb: liquidate all your long term shares before distributions. Short term shares are (usually) better liquidated after distribution.
For example, suppose you have a LT share purchased at $100. It's now priced at $110. Suppose also that the distribution is going to be $3 LTG, $2 ord income. The price will drop to $105.
Sell before distribution and you have $10 LTG. Sell after, and you realize a $5 LTG. But you've also got a $3 LTG distribution, and $2 in ord income. That $10 realized LTG is better than the $8 LTG ($5 + $3) and $2 ordinary income.
The reasoning on the short term shares is the same, just backward. You're usually worse off realizing STG than getting the some of those gains as LTG distributions and some as ord income.
But if you average the costs, some of the LT gain gets shifted to ST gain. That's just the way the arithmetic works if the long term shares were cheaper.
If you're currently using average cost, this is a switch that has to be made in writing to the broker (for "covered shares", i.e. shares purchased after 2011), and can't be made on the day of the trade. Check with your broker/fund and get the paperwork done now.
Before you sell these, I would check your figures again regarding your statement of underperformance. VDIGX and PRDGX are dividend growth funds, which always slightly underperform the S + P. But they do outperform the S + P in downturns, thereby have less risk and volatility. I own VDIGX and am very familiar with PRDGX, both these funds are worth keeping IMHO. Their benchmark is large cap blend, not the S + P, and more often than not they exceed their benchmark. FSIVX also more often than not beats its benchmark foreign blend. JMHO
Both of the dividend funds are indexed to the NASDAQ Dividend Acheivers Index. I think they're both outperforming that, but that index isn't going to keep up with the bull market we've had. If you go back and compare to the S&P they are going to look mediocre over the last 1, 3, and 5 years.
FSIVX's problem is that it's an index in markets that are lagging. That's when indices look bad. It will lead the way when developed markets come back. Bill Bernstein had some name for the phenomenon which I can't remember.
To your original question, concur with msf and Jerry above. If these are in a taxable account, sell before distribution to avoid cost basis problems. If qualified, doesn't matter one bit.
My comparisons were from Morningstar, I know there are numerous sources for such comparisons, was just referencing one different than the one you used. You can always find evidence to support your gut feelings if you research enough, thats why you hear the the term analysis paralysis so much
Three year ratings for VDIGX are 4/4/5/5/5 (Total return/consistent/preservation/tax/expense)