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I will sell my position if you all want it to go up
We all feel that way. Check @JD_co posts about him being a contrarian indicator. JD says he only needs to think about a trade (and not actually do it) and the price will move in the opposite direction.
I have some 8% international in the actively managed portfolio. CGXU and OSEA for international LC, CGGO and GQPRX for global and BISAX for international SC.
I switched to BISAX after HIISX disappointed me in the last two years. Both of those funds had terrible performance in 2022, for that matter. DIVI is a good choice, but its benchmark changed not long ago, making long-term comparison difficult.
Having said that may be PRWCX will perform better than its peers in June if the Tech trade and market takes a breather and the overweight HC outperforms. What stumped me was it underperforming. TCAF that much.
PRCWX traditionally lags its peers further and further as the year goes on, then distributes a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead.
Having said that may be PRWCX will perform better than its peers in June if the Tech trade and market takes a breather and the overweight HC outperforms. What stumped me was it underperforming. TCAF that much.
PRCWX traditionally lags its peers further and further as the year goes on, then distributes a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead.
Which kind of annoys me b/c I'd love to get regular dividends that could be DRIPped during the year versus only in December ... but hey, they're not going to listen to me...
Even with quarterly dividends compounding, Wellington gets trounced by Giroux's fund. So do most, if not all other 60/40 allocation funds. https://www.dpfaber.com/PRWCX-VWENX-chart.jpg
Even with quarterly dividends compounding, Wellington gets trounced by Giroux's fund. So do most, if not all other 60/40 allocation funds. https://www.dpfaber.com/PRWCX-VWENX-chart.jpg
I don't think the above chart is correct. M* shows for 5 years that PRWCX made 73.4% and WVENX made 58.9
PRCWX traditionally lags its peers further and further as the year goes on, then distributes a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead.
The implication here is that the PRWCX's December div, or more generally any div, increases total return. However, a security's price is reduced by the amount of the div (aside from market fluctuations on the ex-day), netting zero change in total return.
If it were otherwise, one would not see gazillions of articles advising investors not to buy a div (purchase a security shortly before it goes ex-div). Here, for example, is Vanguard's admonition including a section entitled "Do the math". https://investor.vanguard.com/investor-resources-education/taxes/buying-dividend
Here's a nice page describing how mutual fund divs work in general. It includes the paragraph:
A mutual fund’s net asset value is the total value of all securities held by the fund. All dividends and interest payments earned by the fund initially become part of the fund’s total net asset value and would, therefore, increase the fund’s daily NAV. A dividend distribution made by the fund would be removing assets from a fund’s NAV. When a dividend distribution is made, the fund’s daily NAV would be reduced by the amount of the distribution.
Thanks @msf. That addresses the dividends. However, are not capital gains separate? Are the cap gains also included in the NAV? I’ve heard (in the distant past) that some fund managers will not reveal the date the cap gains are to be distributed ahead of time because some investors could game the system.
In general, mutual funds don't preannounce distributions except for the yearend distributions. It's just their practice. But ETFs, CEFs and stocks preannounce them. And some investors play around with those but that is just noise. As things flow through the NAV, then the NAV is decreased by the distribution amount on the ex-div day.
That addresses the dividends. However, are not capital gains separate?
Regardless of what distributions are called, the effect is the same. Though for tax purposes distributions may be characterized as ordinary income divs, qualified income divs, or cap gains divs.
Since you mentioned gaming the system, it's worth mentioning that the IRS has a rule to protect against gaming cap gains. Say that you buy a fund at $10 the day before it distributes a cap gain div of $1. The next day the fund is priced at $9, and you sell your shares.
You think you've got a $1 long term gain (cap gain div) and a more valuable $1 short term loss. The IRS says that you must treat that loss (of a share you held for one day) as a long term loss. Unless you hold the share for at least six months, you can't play this game.
The IRS has a different rule to protect against gaming qualified divs. Generally it is necessary for a security to be held for at least 61 days (starting 60 days before the ex-div date) for the div to be qualified. Funds must satisfy this rule in order to pass through divs as qualified.
If you don't hold likewise hold the fund shares for a 61 day period around the fund's ex-div date, then the fund divs cannot be treated as qualified. Even if the fund's 1099-DIV says that they are.
>> The underlying premise, viz. that dividends increase total returns, is mistaken
I understand the arithmetic here, but when I compare the last three years of (e.g.) Apple and Barnes Group stock performance on Stockchart adjusted (div) and unadjusted (no div), the div value is higher by a few percent with each stock. The delta is due to ... what? Corporate capital gains?
An unadjusted stock price is lower - it drops every time a dividend is paid. Look at Yahoo's historical price table for AAPL. On Feb 9, the closing price went up 53¢ (from $188.32 to $188.85) due to market fluctuation. The adjusted value went up 77¢ (from $188.08 to $188.85); the additional 24¢ was due to the 24¢ dividend.
It's easier to see the effect visually with a security that has a relatively steady value (little noise from market fluctuations) and fairly consistent periodic distributions. Something like a bond fund that declares and pays monthly.
Something like RPHIX. The sawtooth pattern (rising price until div, then back down to base; rinse, repeat) is obvious in the price chart. The adjusted div value rises fairly smoothly and linearly.
Reinvested dividends give investors fractionally more shares. As the value of a stock increases, the value of those fractional shares increases as well. This tends to widen the gap between adjusted (div reinvested) share value and unadjusted (raw share price) over time.
Hence the widening gap in APPL since the beginning of 2023. Even without added divs in 2023 and YTD.
I can't see the referenced chart, though I suspect it is a price chart and not a chart of total returns.
NO! The chart is a Morningstar Total Return graph for the past five years.
While it is obviously true that distributions dilute NAV on the day of posting, almost all high quality funds prices will revert to mean fairly quickly. PRWCX posted its last dividend on Dec 18, 2023 and NAV fell over 3.5% on the day, but price fully recovered in less than two months.
The underlying premise, viz. that dividends increase total returns, is mistaken
No, you are mistaken. For high-quality equity dividends absolutely increase total returns, that is why they are paid: to reward long-term shareholders. The equalization of NAV to distribution only holds effect on the ex dividend date and NAV should revert to mean reasonably quickly. The idea that "dividends don't matter" is not something a careful investor would give any credit.
While it is obviously true that distributions dilute NAV on the day of posting, almost all high quality funds prices will revert to mean fairly quickly. PRWCX posted its last dividend on Dec 18, 2023 and NAV fell over 3.5% on the day, but price fully recovered in less than two months.
Actually it took slightly more than two months (until Feb 22) for the price to rise to its record-date price, but let's not quibble over days.
Your theory is that the dividends adds to total return, rather than just "swiping" value from share price. Specifically, PRWCX had "a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead."
The evidence presented is that PRWCX's price recovered in two months. The problem here is that you have not distinguished between price appreciation due to normal market movement (i.e. peers moving somewhat in tandem) and additional price appreciation due to mean reversion (i.e. recovering price drop when div distributed).
Between Dec 19 (PRWCX ex-date) and Feb 22, PRWCX appreciated from $33.66 to $35.05, for a gain of 4.13%. (The distribution of $1.4075 was 4.03% of the record date price.)
For reference, FBALX, from its ex-date of Dec 21 to Feb 22 appreciated from $26.81 to $28.07, for a gain of 4.70%. (The distribution of 29.1¢ was 1.08% of the record date price.)
In case the two day difference in the time periods seems problematic, rest assured that it doesn't matter. The price of PRWCX was identical on Dec 19 and Dec 21.
As I understand your theory, PRWCX should have appreciated substantially more than FBALX to make up for its larger distribution (4.03% vs 1.08%). But it didn't. PRWCX appreciated roughly the same amount as FBALX; in fact it appreciated about 1/2% less. Normal performance difference between similar funds. Nothing to suggest that the funds were appreciating in part to make up for their ex-div price drops.
Not that this disproves your theory. But it dismisses your numeric data. It would help if you could advance some explanation of why the price of a fund, determined by the prices of over 300 underlying securities, would appreciate merely because it distributed a dividend.
Maybe, perhaps, you could make such an argument for an individual stock (e.g. investors think they're getting value from the div so they bid up the stock price). But such an argument doesn't fly when it comes to mutual funds.
It seems you feel you have a nuanced view on the general subject you have been discussing in this thread that others are not zeroing in on. Since your view is not limited to PRWCX but applies to mutual funds in general, do you mind opening a separate new thread on the topic so we leave this thread for more PRWCX specific matters? For continuity of discussion, you are free to copy on to the new thread all posts from this thread starting with your first post. If you need help with copying and pasting on to the new thread, we can request @Old_Joe to help out as he did the same for another topic and he was much better at it than I was. Let us know after you open the new thread. I am also happy to participate there.
Actually it took slightly more than two months (until Feb 22) for the price to rise to its record-date price, but let's not quibble over days...
I appreciate all the work you put into this post, really, but I am afraid I don't understand your overall point. Combining share price gain and dividend payouts, the total returns of FBALX vs. PRWCX for 12/19/2023 - 2/22/2024 come to 3.86% and 3.80%, respectively, according to M*. FBALX is an excellent fund, sure, but PRWCX has delivered better overall returns over longer intervals, helped in part (I believe) by stronger dividend performance. This thread is about disappointing-looking PRWCX returns YTD. I reiterate my prediction that the fund will pay another outstanding dividend this year and re-establish itself as the category leader shortly afterwards, as it usually does. Also, in general, when comparing otherwise similar investments, higher dividends are better than lower dividends.
It would help if you could advance some explanation of why the price of a fund, determined by the prices of over 300 underlying securities, would appreciate merely because it distributed a dividend.
You missed my point by 180 degrees here. My position is that dividends are ultimately beneficial to total returns. Although a divided payout negatively disrupts share price trajectory temporarily, mean price reversion and the compounding effect tend to push net asset value gains in subsequent periods.
It seems you feel you have a nuanced view on the general subject you have been discussing in this thread that others are not zeroing in on. Since your view is not limited to PRWCX but applies to mutual funds in general, do you mind opening a separate new thread on the topic so we leave this thread for more PRWCX specific matters? For continuity of discussion, you are free to copy on to the new thread all posts from this thread starting with your first post. If you need help with copying and pasting on to the new thread, we can request @Old_Joe to help out as he did the same for another topic and he was much better at it than I was. Let us know after you open the new thread. I am also happy to participate there.
Thanks.
My apologies if I took things off track. Actually, I am more interested specifically in PRWCX than in general investment theorizing, and I will restrict any further posts on this thread to the subject at hand. I'm new here, and learning, please forgive me. Thank you.
If you would like me to change the subject or OP, please draft how you like it to read and I am happy to edit the OP. Let @old_Joe know if you would like the previous discussion copy pasted there. Instead if you would like to start new on the topic at that new thread, that is fine too.
Comments
I switched to BISAX after HIISX disappointed me in the last two years. Both of those funds had terrible performance in 2022, for that matter. DIVI is a good choice, but its benchmark changed not long ago, making long-term comparison difficult.
https://www.dpfaber.com/PRWCX-VWENX-chart.jpg
I can't see the referenced chart, though I suspect it is a price chart and not a chart of total returns.
The underlying premise, viz. that dividends increase total returns, is mistaken: The implication here is that the PRWCX's December div, or more generally any div, increases total return. However, a security's price is reduced by the amount of the div (aside from market fluctuations on the ex-day), netting zero change in total return.
If it were otherwise, one would not see gazillions of articles advising investors not to buy a div (purchase a security shortly before it goes ex-div). Here, for example, is Vanguard's admonition including a section entitled "Do the math".
https://investor.vanguard.com/investor-resources-education/taxes/buying-dividend
Here's a nice page describing how mutual fund divs work in general. It includes the paragraph: https://www.dividend.com/dividend-education/how-do-mutual-funds-pay-dividends
But ETFs, CEFs and stocks preannounce them. And some investors play around with those but that is just noise. As things flow through the NAV, then the NAV is decreased by the distribution amount on the ex-div day.
Regardless of what distributions are called, the effect is the same. Though for tax purposes distributions may be characterized as ordinary income divs, qualified income divs, or cap gains divs.
Since you mentioned gaming the system, it's worth mentioning that the IRS has a rule to protect against gaming cap gains. Say that you buy a fund at $10 the day before it distributes a cap gain div of $1. The next day the fund is priced at $9, and you sell your shares.
You think you've got a $1 long term gain (cap gain div) and a more valuable $1 short term loss. The IRS says that you must treat that loss (of a share you held for one day) as a long term loss. Unless you hold the share for at least six months, you can't play this game.
https://fairmark.com/investment-taxation/capital-gain/selling-mutual-fund-shares/shares-held-six-months-or-less/
The IRS has a different rule to protect against gaming qualified divs. Generally it is necessary for a security to be held for at least 61 days (starting 60 days before the ex-div date) for the div to be qualified. Funds must satisfy this rule in order to pass through divs as qualified.
https://www.fidelity.com/tax-information/tax-topics/qualified-dividends
If you don't hold likewise hold the fund shares for a 61 day period around the fund's ex-div date, then the fund divs cannot be treated as qualified. Even if the fund's 1099-DIV says that they are.
I understand the arithmetic here, but when I compare the last three years of (e.g.) Apple and Barnes Group stock performance on Stockchart adjusted (div) and unadjusted (no div), the div value is higher by a few percent with each stock. The delta is due to ... what? Corporate capital gains?
An unadjusted stock price is lower - it drops every time a dividend is paid. Look at Yahoo's historical price table for AAPL. On Feb 9, the closing price went up 53¢ (from $188.32 to $188.85) due to market fluctuation. The adjusted value went up 77¢ (from $188.08 to $188.85); the additional 24¢ was due to the 24¢ dividend.
It's easier to see the effect visually with a security that has a relatively steady value (little noise from market fluctuations) and fairly consistent periodic distributions. Something like a bond fund that declares and pays monthly.
Something like RPHIX. The sawtooth pattern (rising price until div, then back down to base; rinse, repeat) is obvious in the price chart. The adjusted div value rises fairly smoothly and linearly.
StockCharts graph of RPHIX
Hence the widening gap in APPL since the beginning of 2023. Even without added divs in 2023 and YTD.
So should the premise be modulated? Total return includes the extra shares, of course
While it is obviously true that distributions dilute NAV on the day of posting, almost all high quality funds prices will revert to mean fairly quickly. PRWCX posted its last dividend on Dec 18, 2023 and NAV fell over 3.5% on the day, but price fully recovered in less than two months.
Your theory is that the dividends adds to total return, rather than just "swiping" value from share price. Specifically, PRWCX had "a massive dividend and CG payout in December, putting it squarely back in the pre-tax Total Return lead."
The evidence presented is that PRWCX's price recovered in two months. The problem here is that you have not distinguished between price appreciation due to normal market movement (i.e. peers moving somewhat in tandem) and additional price appreciation due to mean reversion (i.e. recovering price drop when div distributed).
Between Dec 19 (PRWCX ex-date) and Feb 22, PRWCX appreciated from $33.66 to $35.05, for a gain of 4.13%. (The distribution of $1.4075 was 4.03% of the record date price.)
For reference, FBALX, from its ex-date of Dec 21 to Feb 22 appreciated from $26.81 to $28.07, for a gain of 4.70%. (The distribution of 29.1¢ was 1.08% of the record date price.)
In case the two day difference in the time periods seems problematic, rest assured that it doesn't matter. The price of PRWCX was identical on Dec 19 and Dec 21.
As I understand your theory, PRWCX should have appreciated substantially more than FBALX to make up for its larger distribution (4.03% vs 1.08%). But it didn't. PRWCX appreciated roughly the same amount as FBALX; in fact it appreciated about 1/2% less. Normal performance difference between similar funds. Nothing to suggest that the funds were appreciating in part to make up for their ex-div price drops.
Not that this disproves your theory. But it dismisses your numeric data. It would help if you could advance some explanation of why the price of a fund, determined by the prices of over 300 underlying securities, would appreciate merely because it distributed a dividend.
Maybe, perhaps, you could make such an argument for an individual stock (e.g. investors think they're getting value from the div so they bid up the stock price). But such an argument doesn't fly when it comes to mutual funds.
It seems you feel you have a nuanced view on the general subject you have been discussing in this thread that others are not zeroing in on. Since your view is not limited to PRWCX but applies to mutual funds in general, do you mind opening a separate new thread on the topic so we leave this thread for more PRWCX specific matters? For continuity of discussion, you are free to copy on to the new thread all posts from this thread starting with your first post. If you need help with copying and pasting on to the new thread, we can request @Old_Joe to help out as he did the same for another topic and he was much better at it than I was. Let us know after you open the new thread. I am also happy to participate there.
Thanks.
If you would like me to change the subject or OP, please draft how you like it to read and I am happy to edit the OP. Let @old_Joe know if you would like the previous discussion copy pasted there. Instead if you would like to start new on the topic at that new thread, that is fine too.
Welcome!