The chart below shows the dividend, the capital gain and the impact it had on the price of each ETF. I have chosen to use just a few ETFs as an illustration of the general situation though there was a total of 35 ETFs that went ex today (see the full list at the ProShares site).
| Fund Name | Ticker | Dividend | S.T. Cap Gain | Closing price 12/22/2008 | ex-dividend price | percent change |
| UltraShort QQQ | QID | 0.005739 | 9.49928 | 68.82 | 59.31 | 14% |
| UltraShort Dow30 | DXD | 0.027612 | 16.0274 | 73.12 | 57.06 | 22% |
| UltraShort S&P500 | SDS | 0.028553 | 11.46188 | 87.44 | 75.95 | 13% |
| UltraShort MidCap400 | MZZ | 0.007783 | 23.84952 | 88.39 | 64.53 | 27% |
| UltraShort Russell2000 | TWM | 0.066508 | 25.00731 | 94.22 | 69.15 | 27% |
| UltraShort Basic Materials | SMN | 0.008847 | 26.57907 | 69.48 | 42.89 | 38% |
| UltraShort Consumer Services | SCC | 0.008631 | 33.91358 | 124.92 | 91.00 | 27% |
| UltraShort Real Estate | SRS | 0.023996 | 4.56656 | 61.03 | 56.44 | 8% |
You can see that the combination of the dividend and the short term capital gain had a large effect on the price of each ETF. Reductions in price ranged from 8% to 38%.
It's true that investors receive the income from this action. The problem is that the money is taxable and ProShares gave little warning that today was the ex-dividend date. They made the announcement last night and today it took effect. For those who were holding the ETFs for just a few days or as a quick overnight trade there was no opportunity to sell the ETFs beforehand - they are now stuck paying taxes on the capital gains.
Why are the distributions so big? As it says on the ProShares site, all ETFs are required by the IRS to distribute substantially all of their income and capital gains to shareholders at least annually.
So here is another aspect of the ProShares ETFs that investors need to be cautious about. As if these ETFs weren't volatile enough already.
3 comments:
Hi and Merry Christmas,
You write that "ProShares gave little warning" ...
It is a joke : for me, there has not been warning at all !!!
A warning, as little it could be, should have been one day or two at least : shareholders as traders would have been able to decide, in true knowledge, the consequences of keeping or selling before the detachment, don't you think so !?
In fact, their decision without legal or human or social warning has provoked a real disaster for millions and millions of shareholders and traders : their kind of action is not of nature to give actually confidence.
Do you think a plaintiff's action is possible ?
Thanks for reading me.
Sal.
There must be something we can do. I bought SDS on Dec 18, so essentially owned it for two days before the reset on the 22nd. I lost 3K immediately then held on to it through the end of the year waiting on a dividend. My broker suggested there would be a dividend of 11.46 per share. The dividend was actually a whopping $5.40 which posted today and the 11.46 is an additional captial gains tax.
This is one of my worst trades ever and I actually bet the right direction! Go figure.
Now result season is going on and results are not that positive in broader terms. More or less results are mix for Indian companies. Still Indian stock market requires one triggering point which can give clear trend in the market.
Still Nifty is in mix zone. Nifty will be bullish only if Nifty manages to trade and sustain above 3150-3200 level below these levels bears will rule the dalaal street.
Few Stocks to stay away from for short term
1. DLF
2. Satyam comp
3. Bharti Airtel
4. Tata steel
5. Rcom
Please feel free to contact us for any query.
Regards
www.ShareTipsInfo.com Team
Call at:-
+91-9891655316
+91-9899056796
+91-9891890425
On Yahoo Messenger Chat Id: ShareTipsInfo or ShareTipsInfo
On Google Talk Chat Id: ShareTipsInfo1
Mail at:-
contact@sharetipsinfo.com
sharetipsinfo@yahoo.com
sharetipsinfo_1@yahoo.com
sharetipsinfo@gmail.com
Post a Comment
Note: Only a member of this blog may post a comment.