S&P 500 index fund distrubutes over 5% cap gain?

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madsinger
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S&P 500 index fund distrubutes over 5% cap gain?

Post by madsinger »

Just an observation. The (yucky) S&P500 index fund in my 401-k plan at work is OGEAX (JP Morgan, 0.45% ER). Yesterday it had a long capital gain distribution of 2.42 and short term distribution of 0.03 on an NAV of 40.43. This is a 5.5% capital gain distribution from a S&P 500 Index fund? How on earth are they managing this fund?

Now, I know this does not affect my taxes...this is in a 401-k plan. But, I was just surprised that they could create any long-term gains out of this fund (and even a short term gain?)

Just another reason to like Vanguard, I guess...

-Brad.
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BrandonBogle
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Re: S&P 500 index fund distrubutes over 5% cap gain?

Post by BrandonBogle »

Some companies were added/removed from the index this year, which likely is the biggest culprit to this. But yes, Vanguard's way of having the ETF be a share class of the underlying fund helps to avoid these types of issues and minimize costs.
The Wizard
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Re: S&P 500 index fund distrubutes over 5% cap gain?

Post by The Wizard »

BrandonBogle wrote:Some companies were added/removed from the index this year, which likely is the biggest culprit to this. But yes, Vanguard's way of having the ETF be a share class of the underlying fund helps to avoid these types of issues and minimize costs.
Are you saying that this year, VG's 500 index fund (VFINX) declared capital gains while the ETF (VOO) did not?
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ogd
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Re: S&P 500 index fund distrubutes over 5% cap gain?

Post by ogd »

The Wizard wrote:Are you saying that this year, VG's 500 index fund (VFINX) declared capital gains while the ETF (VOO) did not?
No, VFINX and VOO are the same underlying fund so VFINX can use VOO to get rid of capital gains. It's worth remembering that not all index funds are created the same. AFAIK, Vanguard has a patent on this structure and while I don't necessarily agree with this from an ethical point of view, it does give Vanguard funds an advantage for the next 10 years or so until the patent expires.
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madsinger
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Re: S&P 500 index fund distrubutes over 5% cap gain?

Post by madsinger »

BrandonBogle wrote:Some companies were added/removed from the index this year, which likely is the biggest culprit to this. But yes, Vanguard's way of having the ETF be a share class of the underlying fund helps to avoid these types of issues and minimize costs.
I don't think the additions/deletions can be the whole story. For one thing, the turnover in the fund is only 4% per year. They would have had to sell some amazing winners to produce a 5.5% cap gain if this was the cause. Also, short term gains? I don't think any stock gets added and deleted from the Index in a year.

My guess is that they buy and sell rather haphazardly, and do not consider tax issues at all. Also, there must be much more trading than I realized in this fund if they can generate these realized gains. It seems like they also don't pay so much attention to stock lots and cost bases. Even Vanguard's actively managed funds, prior to ETF shares, rarely distributed gains like this.

Again, not a big deal for me...just surprising. Also, my usual gripe about a bad S&P 500 fund offered in my 401-k plan...

-Brad.
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Doc
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Re: S&P 500 index fund distrubutes over 5% cap gain?

Post by Doc »

madsinger wrote:I don't think the additions/deletions can be the whole story. For one thing, the turnover in the fund is only 4% per year. They would have had to sell some amazing winners to produce a 5.5% cap gain if this was the cause. Also, short term gains? I don't think any stock gets added and deleted from the Index in a year.

My guess is that they buy and sell rather haphazardly, and do not consider tax issues at all. Also, there must be much more trading than I realized in this fund if they can generate these realized gains.
I was thinking the same thing. They may have had a lot of share withdrawals that forced them to sell stocks with a lot of unrealized gains. Fidelity's 500 fund does not have any capital gain distributions.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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