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Does anyone know if HNDL's distribution is earned or is a portion of it ROC? Schwab classifies the monthly 2020 distributions as "dividend income", but on the Strategy Shares website, it states that they may return capital to meet the monthly distribution. Anyone know the history on this?
One won't know until after the end of the year, when the ETF can calculate the exact numbers, how much of any distribution consisted of ROC. Until then, all figures are estimates:
The Fund will provide disclosures, with each monthly distribution, that estimate the percentages of the current and year-to-date distributions that represent (1) net investment income, (2) capital gains and (3) return of capital. At the end of the year, the Fund may be required under applicable law to re-characterize distributions made previously during that year among (1) ordinary income, (2) capital gains and (3) return of capital for tax purposes. An additional distribution may be made in December ...
Historically, every one of the estimates included a nonzero return of capital as part of the distributions. See this page, click on "Distributions" tab.
[A marketing note: the ETF says that it is 23% leveraged. It computes this by dividing the amount of leverage by the market exposure. It gives an example of buying a house with 77% down and 23% borrowed. This is really 30% leverage in terms of your money at risk. If that $100K house loses 10% of value, your $77K investment has declined $10K, which is a 13% decline not a 12.3% loss.]
"The Fund’s Index seeks to offer the potential for targeted monthly distributions while maintaining a stable net asset value over time (all or a portion of which includes a return of capital if the Fund’s net return is less than the targeted distribution rate). Distributions are not guaranteed, and their rates can be changed at any time."
So HNDL intends to distribute 7% to shareholders each year, and a good portion of that will be likely be ROC (and not income) for now - at least, in the current low-yield environment. Its a payout fund.
I guess OK to hold in a taxable account then, unless they happen to capture a ton of Capital gains.
I guess OK to hold in a taxable account then, unless they happen to capture a ton of Capital gains.
It's an ETF of ETFs (largely bond ETFs or broad equity index funds from Vanguard, iShares, etc.), so it shouldn't be passing through much in the way of cap gains. And it doesn't seem to have generated cap gains through its own trading so far (see the Distributions page I mentioned above).
But with a turnover rate of 83% (per Prospectus p. 1 pdf p. 3), sooner or later some cap gains distributions seem likely.
Comments
M* shows it as income
Historically, every one of the estimates included a nonzero return of capital as part of the distributions. See this page, click on "Distributions" tab.
For example, the estimate for the December distribution shows nearly 5/6 (82.3%) of the distribution coming from return of capital.
http://strategysharesetfs.com/wp-content/uploads/funds/7handl/Rule19a_1_2020_12_Distribution.pdf
[A marketing note: the ETF says that it is 23% leveraged. It computes this by dividing the amount of leverage by the market exposure. It gives an example of buying a house with 77% down and 23% borrowed. This is really 30% leverage in terms of your money at risk. If that $100K house loses 10% of value, your $77K investment has declined $10K, which is a 13% decline not a 12.3% loss.]
So HNDL intends to distribute 7% to shareholders each year, and a good portion of that will be likely be ROC (and not income) for now - at least, in the current low-yield environment. Its a payout fund.
I guess OK to hold in a taxable account then, unless they happen to capture a ton of Capital gains.
But with a turnover rate of 83% (per Prospectus p. 1 pdf p. 3), sooner or later some cap gains distributions seem likely.