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FYI: here’s a scary-sounding catchphrase making the rounds these days—and it’s tricking folks into missing out on big dividends (I’m talking yields of 8.6%+) and upside.
The catchphrase: “earnings recession.”
You might have heard these two words. If you take them at face value, you could easily take them to mean that it’s time to hold off on stocks, particularly with the market hitting all-time highs on the regular.
"it’s tricking folks into missing out on big dividends (I’m talking yields of 8.6%+) and upside."
ETV is a managed payout fund where 93.5% of those "yields" is return of capital.
(The payout amount was apparently set so that it would match divs + cap gains in the 4th quarter, but in the other 3 quarters, you're basically just getting your own cash back.)
From Fidelity, the last 9 quarters of distributions. Cap gains are in orange. All the purple is return of capital. And if you squint carefully, you can see a smidgeon of green at the bottom of the bars - that's the income divs it is passing through.
(If image doesn't show, click on "From Fidelity" link above.)
The fund is of the Tax-Managed, Buy-Write Option type.
From their M* profile: "The Fund intends to sell index options that qualify for treatment as section 1256 contracts on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period. Options strategy of writing (selling) index call options on the S&P 500 (at least 80%) and the NASDAQ-100 (at least 80%) will be employed. Up to 10% of its total assets may be invested in securities of non-U.S. issuers, including up to 5% of issuers located in emerging markets."
Makes it easier to see where those capital gains are coming from.
@msf and @Mark Thank you for the sort out of what is real world. An old is it real or is it "Memorex"; as in audio recording tape comparison advertisement, eh? The updated version being, "Man, that sure doesn't taste like a soy/plant based "burger" OR "Crap I shouldn't have put so much spicy mustard on the pattie."
I really don't get into options, so all I know is what I see on the distributions. From Jan 20, 2017 to the present, Fidelity shows no short term cap gains for the fund, only long term gains.
That is, at least as far as reporting the divs was concerned there was no 60/40 split. Same for Eaton Vance' tax reporting breakdown, with 29.60% cap gains and 64.68% "nondividend distributions, also known as return of capital distributions." (The remaining 6% was non-qualified ord. divs.) https://funds-origin.eatonvance.com/includes/loadDocument.php?fn=31381.pdf&dt=fundpdfs'
The annual report shows a realized loss of $2,399,887 on written options, and a realized gain of $23,362,098 on "investment transactions". That latter figure is around 2% of the AUM ($1B). That's consistent with the cap gains distributions being about 1/4 of the 8% in distributions last year.
I don't see where options accounted for the cap gains that were distributed last year. Maybe they're buried inside the "investment transactions", or somewhere else. As I said, I almost never look at options or how they're treated, and they are a bit different than typical gains.
Comments
ETV is a managed payout fund where 93.5% of those "yields" is return of capital.
(The payout amount was apparently set so that it would match divs + cap gains in the 4th quarter, but in the other 3 quarters, you're basically just getting your own cash back.)
From Fidelity, the last 9 quarters of distributions. Cap gains are in orange. All the purple is return of capital. And if you squint carefully, you can see a smidgeon of green at the bottom of the bars - that's the income divs it is passing through.
(If image doesn't show, click on "From Fidelity" link above.)
"it's tricking folks ..."
From their M* profile: "The Fund intends to sell index options that qualify for treatment as section 1256 contracts on which capital gains and losses are generally treated as 60% long-term and 40% short-term, regardless of holding period. Options strategy of writing (selling) index call options on the S&P 500 (at least 80%) and the NASDAQ-100 (at least 80%) will be employed. Up to 10% of its total assets may be invested in securities of non-U.S. issuers, including up to 5% of issuers located in emerging markets."
Makes it easier to see where those capital gains are coming from.
Thank you for the sort out of what is real world. An old is it real or is it "Memorex"; as in audio recording tape comparison advertisement, eh?
The updated version being, "Man, that sure doesn't taste like a soy/plant based "burger" OR "Crap I shouldn't have put so much spicy mustard on the pattie."
That is, at least as far as reporting the divs was concerned there was no 60/40 split. Same for Eaton Vance' tax reporting breakdown, with 29.60% cap gains and 64.68% "nondividend distributions, also known as return of capital distributions." (The remaining 6% was non-qualified ord. divs.)
https://funds-origin.eatonvance.com/includes/loadDocument.php?fn=31381.pdf&dt=fundpdfs'
The annual report shows a realized loss of $2,399,887 on written options, and a realized gain of $23,362,098 on "investment transactions". That latter figure is around 2% of the AUM ($1B). That's consistent with the cap gains distributions being about 1/4 of the 8% in distributions last year.
I don't see where options accounted for the cap gains that were distributed last year. Maybe they're buried inside the "investment transactions", or somewhere else. As I said, I almost never look at options or how they're treated, and they are a bit different than typical gains.