Sampling of ETFs With Distributions Made Today

Jun 01, 2011 in Total Return

When doing comparisons and analysis, it is obviously important to make sure that data is correct in the first place.    This means consistency.   Below are a sampling of 1-day performance for ETFs that had distributions today (June 1, 2011).  Note that TIP (iShares TIPS ETF) had a nearly 1% distribution today ($1.04 was taken out of the price and the cash will arrive in accounts that hold this security on the payable date:   June 7, 2011).




Comments (3) -

Jun 02, 2011 07:01 #

A very wothwhile and welcome change !!!  

phatbelly United States

Jun 02, 2011 12:17 #

I've wondered about this and whether it should affect the timing of ETF buying or selling. My conclusion is this is a completely neutral situation, for instance, if I buy TIPS right before the distribution day, I don't get the price discount, but I do get the full dividend. And If I buy on the distribution day, I pay the lower price, but I don't get the dividend. The only difference between the two scenarios is the few days of delay between the distribution date and when the dividend actually arrives in my account. Is my understanding correct?

Drew United States

Jun 02, 2011 12:33 #

Yes that is exactly correct.  

Index returns assume divdends are re-invested immediately.   In reality, there is a delay until the payable date.   If the index goes down in the interim, then this difference would get you re-invested at a better price than index assumption.   If price goes up, it will be adverse.

A 1% payout is significant from an analysis perspective (this difference could be the difference in picking one ETF over another).   However, from a real account perspective  -- this delay is virtually meaningless.     A 1% payout means you would hold a 99% position for a few days before getting the cash distribution.    ie, if you had a 10% position in TIP, you would effectively hold a 9.9% position for the days until the payable date.    10% vs 9.9% for a weeks worth of return is totally insignificant.

So the important thing is just to make sure you are accounting for this in your analysis as that is the only place it will really matter.

Chris United States

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