Analyze Charts Graphs

2016 Year-End Fund Distributions & Portfolio Management

Analyze Charts Graphs

At Index Fund Advisors, it is standard operating procedure for us to tailor how we manage client portfolios at year-end in anticipation of dividend and capital gains distributions from the mutual funds that we buy. Dimensional Fund Advisors (DFA) provides us with their estimates on dividends, short term capital gains, and long term capital gains distributions so that we can better estimate tax implications for our investors.

Although many clients may not recognize the underpinnings of our Portfolio Management & Research Department, they can be rest assured that we are constantly running a cost/benefit analysis for our clients’ portfolios. Whenever a deposit or withdrawal or rebalancing task is requested, we are always asking ourselves what is the most cost efficient way of completing the task at hand. Although we believe in efficient markets, where millions of market participants are constantly setting prices so that they provide a positive expected return, we also know that there are costs involved in order to capture that expected benefit.

Year-end distributions are no different. Using the most conservative tax assumptions on different distribution types as well as long term historical asset class returns, we can form an idea of when the cost of purchasing into a portfolio does outweigh the benefit of doing so.

For example, if we look at the DFA Emerging Markets Value Portfolio (DFEVX), DFA has provided us income, short term capital gains, and long term capital gains distributions as a percentage of NAV. Applying the most conservative Non-Qualified Dividend, Short Term Gain, Qualified Dividend, Long Term Capital Gain, and Average Foreign Dividend tax rates, we can estimate the percentage tax impact as a percentage of NAV. For DFEVX, the estimated tax impact is 0.32% of NAV. Over the last 50 years, the average monthly return for DFEVX has been 1.28%, or approximately 0.32% per week. So it wouldn’t make sense to buy into DFEVX a couple of days before its recorded dividend date since I know that I will be incurring a estimated cost of 0.32% of NAV and only expect to receive 0.32% in return. Therefore, IFA would advise to stop purchasing that particular fund a week before its ex-dividend date, which happens to be 12/15/2016.

Below is a table showing all of the different mutual funds that we utilize in taxable accounts along with its respective Stop-Purchase Date. We can resume buying these particular funds on the ex-dividend date.

Year-End Stop Purchase and Ex-Dividend Dates
Name Symbol Stop Purchase Date Ex-Dividend Date
TA US Core Equity 2 Portfolio DFTCX 12/7/2016 12/15/2016
US Sustainability Core 1 Portfolio DFSIX 12/2/2016 12/15/2016
US Social Core Equity 2 Portfolio DFUEX 12/2/2016 12/15/2016
TM US Equity Portfolio DTMEX 12/7/2016 12/15/2016
TM US Mktwd Value Portfolio DTMMX 11/26/2016 12/15/2016
TM US Small Cap Portfolio DFTSX 11/28/2016 12/15/2016
TM US Targeted Value Portfolio DTMVX 11/22/2016 12/15/2016
Intl Core Equity Portfolio (I) DFIEX 12/5/2016 12/15/2016
International Social Core Equity Portfolio DSCLX 12/5/2016 12/15/2016
Intl. Sustainability Core 1 Portfolio DFSPX 12/7/2016 12/15/2016
Intl. Vector Equity Portfolio DFVQX 12/4/2016 12/15/2016
Intl Small Co Portfolio (I) DFISX 11/23/2016 12/15/2016
Intl Small Cap Value Portfolio (I) DISVX 11/19/2016 12/15/2016
TM Intl Value Portfolio DTMIX 12/3/2016 12/15/2016
Emerging Mkts Core Equity Portfolio (I) DFCEX 12/8/2016 12/15/2016
Emerging Mkts Social Core Eq Portfolio DFESX 12/8/2016 12/15/2016
Emerging Markets Portfolio (I) DFEMX 12/6/2016 12/15/2016
Emerging Markets Value Portfolio (I) DFEVX 12/6/2016 12/15/2016
Emerging Small Cap Portfolio (I) DEMSX 11/18/2016 12/15/2016
One-Year Portfolio (I)* DFIHX 12/8/2016 12/15/2016
Two-Year Global Portfolio (I) DFGFX 12/3/2016 12/15/2016
Five-Year Global Portfolio (I) DFGBX 11/17/2016 12/15/2016
Short-Term Govt Portfolio (I) DFFGX 12/5/2016 12/15/2016
Global Equity Portfolio (I) DGEIX 12/6/2016 12/15/2016
Global Allocation 60/40 Portfolio (I) DGSIX 11/29/2016 12/15/2016
Global Allocation 25/75 Portfolio (I) DGTSX 11/26/2016 12/15/2016
Global Real Estate Securities Portfolio DFGEX 11/17/2016 12/15/2016
© 2015 Index Fund Advisors, Inc. (IFA.com) Sources, Updates and Disclosures: ifabt.com - Created 11/18/2015

For anyone making a deposit into a taxable account during the “Stop Purchase” Period, we would look to buy into a different asset class, if available. If the deposit is large enough to where we would need to buy across multiple asset classes, we would look for the best alternative that doesn’t push the overall asset allocation out of alignment, but there may be the chance that the deposit will stay in cash for a short period of time. Again, our Portfolio Management & Research Department is constantly doing this type of cost/benefit analysis for our clients.

Should you have any questions in regards to IFA’s policy on handling year-end distributions, feel free to contact your personal IFA Wealth Advisor at 888-643-3133.