Vanguard Explorer Fund tax distributions

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The Vanguard Explorer Fund is a problematic candidate for placement in taxable accounts. The fund has the virtue of a very low dividend yield, and under the current tax regime, has provided 100% qualified dividend status for dividend distributions. The fund also allows a foreign tax credit although historically foreign income has been a minimal portion of fund dividends. The distribution of realized gains is considerably higher than distributions from passive small cap index funds. Thus, the fund is usually recommended for placement in tax-advantaged accounts.

The fund is a Vanguard option for investors desiring an active small cap fund for a strategic asset allocation. The table below summarizes the fund's relation to a number of tax factors.

Table 1. Summary
Fund Distributions.jpg Favorable tax factors Fund Distributions.jpg Unfavorable tax factors

Dividends: Very low
Qualified dividends: Yes (avg. 100%)
Foreign tax credit: Yes, but minimal

Historical gains distributions :High
Turnover: Moderate
Stock Migration: Active stock selection risk
ETF shares : No

The following table provides long term data on the fund's history of both dividend and capital gains distributions. The first table also provides an estimate of the foreign tax credit. One should note that the fund has a fiscal year ending in October, so its reported distributions for a year reflect the prior year's December distribution of dividends and capital gains.

Distributions

Table 2.Vanguard Explorer Fund Tax Distributions
Year Dividends Investor [1] Dividends Admiral [1] Short Term Capital Gains Long Term Capital Gains [2] Qualified Dividends Foreign tax credit [3] FY Investor Return
2013 0.27% 0.43% 0.00% 2.49% 100.00% 0.003% 42.89%
2012 0.16% 0.33% 0.00% 0.00% 100.00% 0.004% 7.00%
2011 0.12% 0.28% 0.00% 0.00% 100.00% 0.002% 10.76%
2010 0.19% 0.36% 0.00% 0.00% 100.00% 0.001% 27.74%
2009 0.38% 0.58% 0.00% 0.00% 100.00% 0.003% 14.46%
2008 0.40% 0.58% 3.68% 13.10% 100.00% 0.009% -40.17%
2007 0.44% 0.62% 1.19% 9.74% 100.00% 0.001% 15.31%
2006 0.36% 0.54% 1.82% 5.69% 100.00% 0.001% 13.59%
2005 0.16% 0.33% 0.00% 0.10% 100.00% 14.53%
2004 -0.11% 0.04% 0.00% 0.00% 6.08%
2003 -0.08% 0.05% 0.00% 0.00% 41.65%
2002 -0.01% 0.13% 0.00% 0.00% -13.93%
2001 0.24% 11.77% 7.46% -16.22%
2000 0.36% 0.00% 8.36% 42.56%
1999 0.36% 0.00% 0.55% 25.14%
1998 0.37% 0.21% 9.65% -11.22%
1997 0.45% 0.00% 4.91% 18.93%
1996 0.51% 1.08% 5.09% 17.97%
1995 0.52% 0.00% 4.33% 17.46%

References

  1. 1.0 1.1 Dividend data is derived from the EDGAR N-CSR annual report filings 2003 onwards and EDGAR N-30D annual report filings 1995-2002.
  2. Capital gains are derived by dividing the annual capital gains distribution by average net assets. Gains data derived from EDGAR N-CSR annual report filings 2003 onwards and EDGAR N-30D annual report filings 1995-2002. Average net asset data derived from EDGAR NSAR filings
    Table.

    (view Google Spreadsheet in browser or download as xls, ods, or pdf)

  3. The foreign tax credit is derived by dividing the annual foreign tax paid by average net assets. Foreign tax data derived from EDGAR N-CSR annual report filings 2003 onwards and EDGAR N-30D annual report filings 1995-2002. Average net asset data derived from EDGAR NSAR filings
    Table.

    (view Google Spreadsheet in browser or download as xls, ods, or pdf)

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