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The price change does make sense, because if somebody owned the ETF on Friday they'd get the distribution, but if they owned it today instead they wouldn't. How much would you pay for an ETF share plus ten dollars, versus the same ETF share but without the ten dollars?HenryPorter wrote:The indices are up today, yet VYM is tracking approximately 0.6% below where it closed on 12/18/15. Are distributions being deducted from the NAV today? If that makes sense at all, not sure what else could explain it.
There's a relentless logic behind an organization paying out cold hard cash that used to be on its balance sheet but isn't any more, in return for no asset (but fixing it up on the liability side by reducing shareholder's equity), seeing a corresponding drop in its price.
For equity ETFs, distributions aren't deducted from the market price, although that wasn't precisely your question, in the sense of a central authority deciding they're now worth a lower amount. The price goes down because all the market participants who care to pay attention already read the announcement and recognize the implications. They set their bids and asks accordingly, also taking into account any other new information they have. The same thing happens with individual stocks.
Dividend payouts, although the effect may not often be large, change the capital structure of the corporation.
I had to look it up, but a high-dividend fund should be expected, if it's working as advertised, to see bigger distribution drops than total market index funds, because of its higher payouts.
Some people aim for a purchase after the drop so that they do not have to pay taxes on the dividend and can purchase more of the asset at a discounted price.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.