ETF Mayhem
By Barry Ritholtz - December 23rd, 2008, 8:45AM
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No, Cramer isn’t behind this — they are merely paying distributions of dividends.
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In any great organization it is far, far safer to be wrong with the majority than to be right alone. —John Kenneth Galbraith
Macro Notes
US$ rally continuesPeter Boockvar
Asian currencies continue to sell off vs the $ on the heels of the news yesterday that South Korea said they will look into hot money inflows stemming from the $ carry trade and the Bank of Indonesia said they are looking into the foreign buying of bills. This follows the news a few weeks ago that Taiwan was limiting foreign deposit holdings and Brazil was taxing foreign inflow transactions. As I mentioned yesterday, we may have reached a short term pain threshold in terms of $ weakness and foreign countries are fighting back as they certainly won't wait for...
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December 23rd, 2008 at 10:47 am
Are you referring to the Korea Fund that was up 850% in the last 2 days?
December 23rd, 2008 at 10:48 am
Ugh.
December 23rd, 2008 at 11:07 am
Cramer totally blew his call that “these ETFs don’t work”. You’d think with him ranting about dividends on every show these days he would have at least considered the dividend effect.
“SRS is lower than it was a year ago when real estate is down big, obviously these ETFs don’t work.”
Duh…
December 23rd, 2008 at 11:24 am
Could someone explain to the clueless (me) what we’re talking about here?
December 23rd, 2008 at 11:36 am
Large price swings in many ETF’s due to payment of distributions in the form of short and long term capital gains. Underlying prices will adjust according some holders may be dumping them to avoid the tax hit on the distributions.
December 23rd, 2008 at 11:53 am
SDS was down ~$12 in the morning. later found out that they paid dividend and cap gain for ~$12.
Cramer has no clue.
December 23rd, 2008 at 12:06 pm
QID is paying a $9.50 dividend.
During the entire course of 2007, total dividends paid were only $1.78 (source: Yahoo finance).
I don’t see why the dividend has to be so much bigger this time around.
Also, they should have announced this in advance; I was watching for it, but didn’t see it.
December 23rd, 2008 at 12:52 pm
The Korea Fund is not “up”– that’s a reverse stock split.
BR: all I see is your headline.
December 23rd, 2008 at 3:25 pm
Since when did ETF’s pay out cap gains? Unless my calculus is off,the ultra short pro shares just went ex at 30% + NAV. That’s not dividends. Anyone any idea on if this also applies to ultra longs? [assuming they had cap gains? LOL] The lack of having to pay out cap gains from PM’s trading activity –even in down years– is a major benefit to ETF’s– at least conventional ones.
Any idea how this “pay out” will be treated in terms of div [qualified or not] v. cap gains???
blind sided by this one
tx
December 23rd, 2008 at 3:59 pm
This was all known if you had read this blog a few months back…because ETFs like QID use options to meet their objective, the IRS requires them to make these short term distributions. If you hold them in an IRA, its no problem. Oustide the IRA, you have to pay the taxman, unless you have some tax loss carry forward. Was a big one though.
December 23rd, 2008 at 4:03 pm
@steve–thanks. so are you saying that it is a cap gain? if so great… i’ll pair off the short ETFs with the corresponding longs and be ‘neutral’ to capture the gain to offset losses until next year.
December 23rd, 2008 at 4:11 pm
@HT
For QID, the $9.51 distribution is 9.499 short-term cap gain, 0.0057 dividend. The gain is paid on 12/30, which means you don’t have access to the money for a few days. I will immediately re-invest it in QID at these bargain prices. Remember put calls, short interest and blogger polls are all at multi year bullish levels…you have to fade them.
December 23rd, 2008 at 4:31 pm
RealMoney has a hate-on for these because it seems largely populated with long-predominantly value-oriented managers.
The big, liquid ones seem to track pretty well: DXD, SSO, DDM, etc.
But the sector and overseas ones track for squat. Or else they track something I really don’t understand, such as a China index that’s at all-time highs.
My opinion is, if you’re going to use these things, they’ve gotta be green banana trades.
December 23rd, 2008 at 8:22 pm
This novice is a little confused:
Had a Stop-Loss on SDS (-2x S&P) at $78, it opened at under $75 this morning per the above, but the Order wasn’t triggered (thankfully). I now look at that still-open stop-loss order and it is at $62.50 — apparently the price was automatically adjusted???