Disclosure: My Colorado muni bond fund: WTCOX.

[dratkinson]

Subject: Disclosure: My Colorado muni bond fund: WTCOX.

Question. Would it be beneficial for the forum/Wiki to track a list of winnowed single-state muni funds, as they are developed from members’ due diligence, to use as a starting point so members avoid more expensive options? Why? Because such a list would have helped me get started last year.

I’ll go first.



The short answer.

I own WTCOX (Westcore Colorado Tax-Exempt Fund).
--Minimum: $2500.
--No load.
--No AMT exposure.
--Intermediate-term.
--ER 0.65%
--Dividends accrue monthly, paid monthly. (IRS >6-mo share-holding period required to protect TE dividends.)
--Transactions accepted online, by phone, and mail. Specific-id sales supported only by fax and mail.
--Mailed transaction confirmations and quarterly statements.
--WTCOX does not have an associated bank routing number, so can’t direct deposit into it.
--Only one 2-way bank account link (purchases, distribution target) is stored per Westcore account.
--Old web interface causes no problems with my old PC. Website: http://www.westcore.com .
--Portfolio. Average credit quality: “A”. Not investment grade: ~8%. Cash: ~11%. (This information not in prospectus.)
See: http://portfolios.morningstar.com/fund/ ... ture=en_US
--Historical average default rate of “A” credit rating: 0.03-0.23%.
See: https://en.wikipedia.org/wiki/Bond_cred ... ault_rates

I’ve owned the fund ~1 year. So far, so good, nothing untoward noticed. Monthly dividends approximately equal to stated current yield*. (* Assume slight difference being due to my shares being purchased at prices different from current price.)

A positive development. Last year the ER was 0.80% stated, 0.15% waived, this year the ER is 0.77% stated, 0.12% waived.



The long answer.

In late 2014--early 2015, the forum was discussing ways to simplify our finances/investments before cognitive decline. This caused me to think seriously about the future and my need to simplify, but I also had the itch to reach for additional yield. My conclusion was that if I had fewer investments returning more, then I didn’t need all the others returning less.

Since suitable higher-yield taxable investments do not exist in the wild, it occurred to me that maybe I could create one if I used the tax code to find one possessing both federal and state tax benefits. So I did my due diligence (below) researching Colorado municipal bond funds.


In recent posts, I’ve mentioned owning a single-state muni fund, but didn’t reveal which. Why? I’m a novice investor. I could be wrong. Didn’t want anyone following me into a hole. Fear of public embarrassment when an obvious-to-others mistake is pointed out. ….

Recently a member asked by PM which fund I bought. If this information can benefit one, then maybe it can benefit others.

And I can benefit from additional eyes performing their due diligence that uncovers omitted search steps and missed information. My original WTCOX shares go LT this month so now would be a good time to begin planning any correction.



My early-2015 due diligence.


Stated goals for a new fixed income investment. I wanted:
--Better tax benefits (fed + state) resulting in better after-tax income than VWLUX (LT national muni). Otherwise why bother?
--More management simplicity and unlimited purchases compared to US savings bonds.
--More transparency than provided by online-only accounts: TD, HSBC HY savings (5.05% then, 0.10% now).
--A good reason to ignore all rate-chasing schemes.
--To reduce my number of open financial accounts.
--To get closer to the simplicity of a 3-fund portfolio in advance of mental decline.

I would fund this new investment from the proceeds from redeeming all my savings bonds and a few MET shares (received from MetLife demutualization), so my AA would be relatively unchanged: bonds before, a few more bonds after.


Death spiral states. Began my search with Forbes article on “death spiral states”. Colorado is not on the short list of states to avoid. Decision: continue.


Search. As one search didn’t immediately find what I wanted, Googled combinations of the phrase “Colorado municipal bond tax exempt no load fund”*. Developed a list of ~10 candidate funds.

* Use of the word “fund” triggers presentation of load-fund ads. In hindsight, for faster result and no ads, should have searched for “Colorado tax exempt no load”.


Simplifying assumptions: loads, fees, AMT. Got/read the prospectus. Rejected any fund with loads, higher fees*, and ATM exposure. That left only the Westcore fund managed by Denver Investments LLC/Westcore Investments/Westcore Trust. Decision: continue.

* After a partial fee waiver, WTCOX’s ER has been 0.65% for many years. I remembered from the BH-recommended bond books that the ER for a (large) recommended bond fund should be ~0.50%. But WTCOX is not a large fund, so assumed its ER is size appropriate.


Morningstar. Used my public library account to access M* premium services. M* had no “stewardship grade” for WTCOX management. (Too small to worry about?) Decision: continue.

Repeated searches found no online source reviewing Westcore management.


Colorado Division of Securities. Called, then wrote (for paper trail), requesting information. Westcore Investments exempts itself from voluntary reporting to Colorado, but does report to SEC.gov. Reply letter provided SEC.gov search information. Decision: continue.


SEC.gov. Colorado Division of Securities letter: “… to assess the “manager” of the fund, [search] http://www.adviserinfo.sec.gov/iapd , choose “Firm” and use the firm’s IARD [Investment Advisor Public Disclosure] number, 107293, … to access the adviser’s regulatory filings, including Form ADV Part 2, the firm’s disclosure brochure. …”

Didn’t notice anything in SEC filings that indicated a reason for concern. Decision: continue.


Denver Better Business Bureau. Called and learned Denver Investments LLC/Westcore Investments, has been in business since 1990 and has no complaints on file. Decision: continue.


Colorado Secretary of State. During BBB phone call, BBB representative checked with Colorado Secretary of State website and found no criminal complaints on file. (For documentation, I should have asked for BBB information by letter.) Decision: continue.


After-tax income analysis. I used excel1040.com to simulate my fed tax return. My CO tax return is simple to implement in Excel---a flat tax system with a few deductions and additions applied to fed taxable income.
--Duplicated my last fed/state tax returns to create known baselines---proof that Excel tools were working.
--Wagged annual dividends (= total bond investment x SEC yield) for each bond candidate to create scenario inputs.
--Reduced WTCOX SEC yield to assume 0.80% ER, if waived fee reinstated. (Assumed “A” default rate baked-in.)
--Compared WTCOX against BH-recommended ST/IT/LT bond options (corporate, municipal, treasury).
--I simulated tax returns for each bond fund candidate, before and after taking SS.

In all cases and with an assumed 0.80% ER, WTCOX produced slightly better after-tax income. Decision: continue.

I’m in the low 25% fed tax bracket and will be exposed to AMT in 2018. CO flat tax is 4.63%.



Investment decisions.
--Given better after-tax income in all cases, fund management in business since 1990 and nothing objectionable noticed in prospectus or public records, I decided to buy WTCOX and pair it 50/50 with VWLUX.
--With better after-tax yields available and simple to manage (WTCOX), and Vanguard munis easy to sell in the interim without worrying about losing tax-preferential treatment of dividends, then there is no need for me to waste time chasing teaser rates.
--My remaining VWIUX (IT national muni) becomes the largest tier of my formal EF, new car fund, and dry powder.


Accounts clean up. All my individual stock shares are sold. My TD account balance is zero and will try to close it. After closing my TD account, will close the HSBC online-only zero-balance saving account linked to it.

All my remaining accounts (Presidential bank interest checking, local B&M coop-linked CU savings, Vanguard, Westcore) mail at least an annual statement, so can't be forgotten. And provide walk-in and/or phone support that works well.

All my bills come as mailed statements, so can’t be forgotten. The majority are paid by ABP (creditors’ automatic bill payment) plans, so won’t be forgotten. The few remaining are paid by phone-CC or check (property tax, only).

Meaning I no longer need online access to manage the majority of my finances/investments. The only online access I still need is to Vanguard’s monthly eStatement, so I don’t fall too far behind in my personal offline investment tracking and management.

So I judge this task---accounts cleanup before mental decline and reaching for additional yield---to a success. My last remaining financial task is to work on my estate documents.



I’ve called myself thinking through and double-checking everything, but I could have missed something.
--If I missed a source during my due diligence, I’d like to know.
--If there is a better CO IT muni fund, I’d like to know.
--If there is a good CO LT muni fund, I’d like to know.





Edit. Completeness, typos.

[grabiner]

After-tax income analysis. I used excel1040.com to simulate my fed tax return. My CO tax return is simple to implement in Excel---a flat tax system with a few deductions and additions applied to fed taxable income.
--Duplicated my last fed/state tax returns to create known baselines---proof that Excel tools were working.
--Wagged annual dividends (= total bond investment x SEC yield) for each bond candidate to create scenario inputs.
--Reduced WTCOX SEC yield to assume 0.80%* ER---waived fee reinstated. (*Note. Most recent stated ER is 0.77%.)
--Compared WTCOX against BH-recommended ST/IT/LT bond options (corporate, municipal, treasury).
--I simulated tax returns for each bond fund candidate, before and after taking SS.

In all cases, WTCOX produced slightly better after-tax income. I’m in the low 25% fed tax bracket. CO flat tax is 4.63%.

This isn't quite a fair comparison because bond funds have different risks. The current SEC yield of the Westcore fund is 2.20%, which means that it currently holds bonds with a 2.85% yield. Vanguard High-Yield Tax-Exempt Admiral has an SEC yield of 2.27%, which becomes 2.17% after CO tax, but it holds bonds with a 2.39% yield. Therefore, these two funds should have about the same expected return, but the Vanguard fund holds bonds which investors believe are less risky.

Usually, when I make this type of comparison, I prefer to compare funds with equal pre-expense yields, but Vanguard doesn't have a fund with that high a yield. If Vanguard offered a fund with similar bonds, it would have a 2.73% SEC yield which becomes 2.60% after CO tax.

For similar reasons, I don't recommend T. Rowe Price MD Tax-Exempt to MD investors given current yields. Its expenses are 0.46%, which is 0.34% higher than Vanguard's yield. Even in the highest MD state and county tax bracket of 8.95%, you need yields of 4% (3.88% after expenses with Vanguard) for the tax on Vanguard's fund to be as much as the extra expenses on T. Rowe Price's.

[radiowave]

Here's a comparison of WTCOX with another CO muni mutual fund by Nuveen FCOTX (and I added the Vanguard national muni VWITX)
https://www.fidelity.com/fund-screener/ ... ITX&tab=pf

Interesting that the Nuveen seems to out perform the other two regarding returns. A Colorado only fund does not have the amount of bonds or diversity of say a NY or CA fund of course.

[dratkinson]

Here's a comparison of WTCOX with another CO muni mutual fund by Nuveen FCOTX (and I added the Vanguard national muni VWITX)
https://www.fidelity.com/fund-screener/ ... ITX&tab=pf

Interesting that the Nuveen seems to out perform the other two regarding returns. A Colorado only fund does not have the amount of bonds or diversity of say a NY or CA fund of course.

Background information for this project. I have an old PC and dialup connection so little could be done from home. All my online research was done from local public library. When I could get there. Some second-guessing of me, a novice investor, being able to complete this project on my own. Many false starts until I learned how to efficiently gather/analyze information. (A pencil-paper matrix of candidate funds and list of “must have” and “must not have” proved most helpful for keeping track of findings.) Total time required to reach a decision that a good solution did/didn't exist: 3-4 months.


I do appreciate your revisiting the fund options, but I believe WTCOX to be a better choice for me than FCOTX. Why?

I followed your link and looked at FCOTX again. The Fidelity notes that it can be bought for “no transaction fee” and “load waived” are enticing. I remember researching Nuveen funds, but did not select any. Didn't recall why, so searched again for the answer.

On M*, I created a chart comparing FCOTX, FCOTX.LW (load waived?), and WTCOX. The two FCOTX charts are the same, meaning M* is ignoring the load. Bottom line: the M* chart does not show a true comparison, so I did not trust it. And since I can not prove it to be otherwise, I must assume the Fidelity chart is equally misleading.

I looked at the FCOTX prospectus again to refresh my memory. The fund makes a conscious effort to reach for additional yield…
--exposure to AMT issues “without limit”,
--up to 20% junk bond exposure,
--use of leverage (“inverse floaters”).
See FCOTX prospectus: http://www.rightprospectus.com/document ... State1.pdf

If I assume FCOTX invests 100% in AMT issues, then in 2018 when I’m subject to the AMT, after taxes I'll be allowed to keep only 72% of the tax-exempt dividends: 72% = 1 - (1 x 1.00 AMT exposure x 0.28 AMT tax). Its SEC yield is not high enough to survive that hit.

For SEC yields, see: https://www.zacks.com/funds/mutual-fund/quote/FCOTX . (My old PC works with this site.)
FCOTX = 2.17% (After AMT: 1.56% = 2.17% x .72)
WTCOX = 2.52%
VWLUX = 1.98%

With FCOTX’s SEC yield lower than WTCOX’s, plus the additional expense of AMT, and the additional risks of junk and leverage, it was too much for me. I recall now this is why I rejected FCOTX.

N.B. To save myself time after looking at several candidates, I eventually made the simplifying assumptions that I would reject all funds with loads, higher fees, and AMT exposure. (Probably should have also added "leverage" to the list in OP above, but forgot it.)

With WTCOX, my only identified additional prospectus risk is that its partial waived fee might be reinstated. But my after-tax income analysis had already demonstrated that was not sufficient reason to reject it. Plus its stated ER has dropping a little since last year when I did my after-tax income analysis, so I'm assuming there should now be less pressure to reinstate the waived fee.



“Plan for the worst, hope for the best.” The FCOTX prospectus promised too much bad, to leave any room for hope.

I recall finding similar problems with the other funds on my list of candidates. (No, I don’t still have the list. No, I don’t still have the matrix I used to speed/organize/analyze my collection of information.) Compared to the other candidates, WTCOX seemed to be a conservative low-cost option. (Anchoring bias?)



Updated simplifying assumptions: no loads, no higher fees, no AMT exposure, no leverage. In my OP, I forgot to show the steps I used to create these simplifying assumptions, so reconstructing them here is no worse than defending my logic in a formal software design review. I don't mind doing it and consider the effort to be worthwhile if it helps others.

The identity and analysis of the other CO muni candidates is left as a student exercise for those interested.



To anyone searching for a Colorado (or any other single-state) muni bond fund, you must do your own due diligence based on your unique financial situation. It can not be assumed that I did it correctly, or that what is an acceptable solution for me will be an acceptable solution for you.

[dratkinson]

The most recent mailed summary prospectus for the Westcore Colorado Tax-Exempt Fund included an announcement that a Thomson Reuters Lipper award was received by Denver Investments for their management of the Westcore fixed income funds: "Best Fixed Income---Small Fund Group".

Had to go looking and found a couple of links:

Thomson Reuters Lipper Announces U.S. Fund Awards 2017 Winners

Denver Investments’ Westcore Funds Earn Two 2017 Thomson Reuters Lipper Fund Awards

I'm documenting this as belated due diligence, or confirmation bias.



Second thought. Seriously, this is anecdotal evidence that by following the advice of the forum and recommended authors, a novice investor can learn enough to identify and avoid bad funds.

Thanks, all.

[dratkinson]

After the Reuter award last year, Denver Investments negotiated to be bought-by/merge-with Segall Bryant & Hamill.

According to the proxy material, the business model would remain the same, current staff would remain, but the combination would have more resources and do business as SBH.

New homepage: https://sbhfunds.com/

[dratkinson]

I TLHed covered shares of WTCOX on 7-9 Nov. I was worried about how it would play out. Why?

--Westcore Funds (a small fund family) had recently merged with Segall Bryant & Hamill Funds (another small fund family), both now doing business as SBH Funds. I didn’t know what to expect.

--My most recent TLH experience with Vanguard was worrisome: uncovered shares, 3 different cost basis numbers reported (website didn’t agree with received 1099B, both disagreed with my Excel cost basis). And when I asked CSR for a letter to confirm my request to sell by specific ID, was told “We don’t do that.” Had to override Vanguard’s 1099B cost basis to file tax return. IRS hasn’t complained. Yet.

So after speaking with SBH CSRs over several days, confirming what I could do, and being reassured that everything would work okay, I still went forward with some worry. Why? If it’s worrisome TLHing with Vanguard, how can it be less so with a smaller fund family.

Long story short. Everything worked as advertised, my booked loss is exactly as expected, and well documented.



I had a few additional restrictions to work around.
--WTCOX is monthly accrual so all shares sold must be owned >half year to protect TE dividends.
--Can only transact (buy or sell) $25K/day.
--Can only sell by specific lot ID (TLH) by letter or fax (not online or by phone).

SBH provided a one-page fillable PDF Letter of Instruction (LOI). It contained 3 sections: identifying information, instructions, signature/date. It was easy to drop my Excel data (purchase: date, #shares, $amount) into the fillable LOI.

I completed each LOI a few days early, then double-checked each before execution. Just to be sure.

It required 3 days to TLH all I needed to get my $3K deduction for this year.



TLH Action Steps.
--Identify TLH potential. (Excel tracking: shares x (purchase price - today’s price) = TLH potential.)
--Verify I’m allowed to TLH (see TLH Planning Tools, below).
--Complete, print, sign SBH LOI at home.
--Fax LOI from public library. (My tax dollars at work: free to do so.)
--Call SBH CSR, confirm fax receipt/legibility. Everything was good. (Fax viewed on CSR's PC screen.)


Received after each transaction.
--Website transaction link to “Reportable Tax Lot Gain/Loss Details”. Exactly matches my Excel.
--SBH cost basis letter. Exactly matches my Excel: for each tax-lot: shares + cost basis---didn’t total loss.
--SBH confirmation letter of total shares sold. Exactly matches my Excel total shares sold.


My IRS documentation (printed, stapled, punched, stored in a binder) for each TLH transaction:
--My completed LOI + fax transmission verification report (provided by fax machine).
--SBH Reportable Tax Lot Gain/Loss Details (printed from website).
--SBH cost basis letter.
--SBH transaction confirmation letter.

Result. Everything is to the penny with what I expected. I am blown away by how much more IRS documentation SBH provided compared to Vanguard. I don’t know if the difference is due to covered vs. uncovered shares.

Lesson learned. TLHing with SBH Funds seems to be easy to live with and ample documentation is provided.

I used the WTCOX TLH proceeds to buy VWLUX (Vanguard LT national muni fund) on 14 Nov.



Next month, I plan to TLH covered shares of VWLUX*, and use the proceeds to re-buy WTCOX on 17 Dec. That’ll book an additional $3K loss to use next year. (And I’ll get the chance to see how Vanguard handles IRS documentation for covered shares.)

(* The VWLUX TLH proceeds will go to my CU savings. Because SBH only links to one account, so it needs to be a bank account to get a bi-directional push/pull from SBH.)

Idea. I may try the SBH automated transactions feature (my old PC likes SBH’s old website*) to see if I can use it to work around the issue of having to submit transactions over multiple days---to work around the $25K/day transaction limit. If not, then it’s only a minor first world problem. (* Note to Vanguard: If it ain’t broke, please don’t fix it until it is.)


TLH Planning Tools.
--Tools to identify TLH potential. Use whatever tool works for you.
--Transaction checklist. Review all requirements imposed by IRS (holding periods,…), fund families (daily transaction limit, frequent trading policy,...), and banking (savings monthly withdrawal limit,…). If you don’t have a transaction checklist---suitable for buying and selling---it’s most helpful to create one with reminders to help avoid problems. (Have previously posted my transaction checklist.)
--Calendar*. Lay every planned transaction out on a calendar. Compute intervening days so you know: when to stop rebalancing, when you can sell/TLH, when you can re-buy, when you can resume rebalancing.


* My TLHing Roundtrip Timeline. WTCOX/VWLUX distributions redirected to savings/mmkt to avoid issue of replacement shares.
--5 Oct, last rebalance into WTCOX before TLHing.
--7-9 Nov (7 Nov, 33 days after 5 Oct replacement shares), TLH’d WTCOX.
--14 Nov, all WTCOX proceeds in my CU savings. (Mindful of 6-withdrawals/mo limit on savings.)
--14 Nov, bought VWLUX by CSR (my old PC doesn’t like Vanguard’s website).
--17 Dec (a Monday, 33 days after VWLUX replacement shares bought on 14 Nov), plan to TLH VWLUX.
--19 Dec, VWLUX proceeds should be in my CU savings.
--19 Dec (40 days after last WTCOX TLH on 9 Nov), will re-buy, resume rebalancing into WTCOX.
--18 Jan (32 days after VWLUX TLH on 17 Dec), resume rebalancing into VWLUX.



So Yea! I’m one-and-done TLHing event for this year. And for next year too… maybe.



Edit. Completeness.

[grabiner]

--My most recent TLH experience with Vanguard was worrisome: uncovered shares, 3 different cost basis numbers reported (website didn’t agree with received 1099B, both disagreed with my Excel cost basis). And when I asked CSR for a letter to confirm my request to sell by specific ID, was told “We don’t do that.” Had to override Vanguard’s 1099B cost basis to file tax return. IRS hasn’t complained. Yet.

I have had similar problems, except that the website agrees with the 1099-B when I sell uncovered shares (as both use average basis). I have usually gotten acknowledgements; technically, the IRS requires that you get such an acknowledgement, or else you must use FIFO or average basis.

The IRS isn't likely to complain about the override, because the 1099-B that was sent to the IRS does not report any basis on non-covered shares. Even if you report this properly on your Form 8949 (sold for $X, reported basis of $Y, adjustment of $Z, correct gain/loss as $X-$Y-$Z), the IRS knows that brokerages are likely to have incorrect basis for non-covered shares. Doing this with covered shares would raise a bit more IRS suspicion, as it would imply that your brokerage had an incorrect record when it was required to keep a correct record.

[dratkinson]

See My Roundtrip TLHing Timeline, above. I didn't make it back, but am satisfied.



17 Dec (Mon), TLHed VWLUX covered shares. As planned, by phone with CSR.

Vanguard's transaction eConfirmation matched my records exactly---correctly listed every share lot sold and provided MOST of the information needed for IRS justification (Acquisition date, Acquisition quantity, Shares relieved/sold).

However, Vanguard's eConfirmation DID NOT include original purchase prices. But CSR had verbally confirmed the total of shares to sell and original purchase price, before the transaction was submitted---both matched my records. So I anticipate no problems with 1099B. (Knock wood.)

Selling uncovered shares at Vanguard was worrisome. Selling covered shares appears to be less so. Will try to avoid selling uncovered shares in future.



19 Dec (Wed), VWLUX TLH proceeds in savings. I should be ready to complete WTCOX round trip, but....

But, I've been watching the market drop for several weeks and equities are beginning to look like the better option. I could buy either bonds or equities and my AA would remain within its 5/25 rebalance bands.

I checked Vanguard's year-end distribution schedule and learned VTSAX will pay a dividend (go ex-dividend) on 24 Dec (Mon), so it's price should drop again, then. Decided to wait and buy VTSAX on 24 Dec (Mon).

But I could be wrong. So daily watched and VTI trended downward from Wed through Fri.

The market closed lower on 21 Dec (Fri). Not enough to be a livesoft RBD (really bad day), but still was encouraged that Monday should be a better day to buy.



24 Dec (Mon), bought VTSAX at its lower ex-dividend price. From savings.

Checked over weekend and learned Monday's market would close 3-hours early (11am MT = 1pm ET).

Awoke early Monday anticipating Vanguard holiday rush (7am MT = 9am ET). There was a short hold (~5-min) before speaking to CSR. (Holiday rush started early?)



26 Dec (Wed), VTSAX price rebounds. Thank you Mr. Market. That's one-in-a-row for this blind squirrel.



Thank you SBH Funds and CSRs for making the TLHing process easy by fax and for providing complete IRS transaction documentation.

Thank you Vanguard and CSRs for making it less worrisome to TLH covered shares. Just waiting for the 1099B to confirm that everything is correct. (See 6 Jan 2019 Update.)

Thank you livesoft for your RBD musings.

Thank you BHs for providing this forum. I could not have learned to do this on my own.

This has been a fun 3-month project (Oct-Dec), and filled with opportunities to identify options, change direction, double-check, act, and second-guess myself.



This documentation provided as a memory aid.





6 Jan 2019 Update.

Just reconciled my Vanguard 31 Dec 2018 eStatement. It contained a page listing "Realized gains and losses" for this VWLUX TLH transaction, and correctly (matched my Excel) listed my cost basis, proceeds, and booked loss. So Vanguard's 1099B should also be correct.

I'm guessing that since Vanguard's December statement is a restatement of all transactions for the year, that it is possible than if I'd TLHed earlier in the year, that I would have also received the "Realized gains and losses" page with that earlier month's eStatement.



Bottom line. The answer to my question in "My first TLH of WTCOX" reply, above: SBH Funds provides better (= more + earlier) TLH documentation of covered shares than does Vanguard---no hoping/guessing required.

[dratkinson]

Received a letter from SBH saying it was in merger talks with CI Financial. Went looking and found this.
Article: https://www.sbhic.com/wp-content/upload ... tywire.pdf

Fingers crossed that WTCOX's future resembles its past.

[dratkinson]

Was noticing that I have some losses in this fund that are over 10%. So this seems to be a good time to TLH, bank some additional carryover losses, and reach for more after-tax income.


TLH. Segall Bryant & Hamill's (Westcore funds merged with SBH funds, SBH then became a CI Financials partner) transaction documentation is excellent and exactly matches my records: each share lot is identified by purchase date and number of shares. The TLH proceeds were ACH'd into my bank account 2-business days later. The Vanguard purchase was recorded on the trade date, but my bank recorded the ACH withdrawal 2-business days later. (My account is on the MF side of Vanguard.)

After the merger(s), the transaction limit has been raised to $50K/day (up from $25K/day). TLHs must still be submitted by fax*, but that's easy to do from public library. (* SBH's letter of instructions is a fillable PDF that is easy to populate by cut/paste from my Excel records. But since the filled PDF can't be saved, it's easier to work/save-for-my-records in Notepad first.)


More after-tax income. All my muni funds are down in the current economic environment, so it seems to be a good idea to TLH one, to buy another producing more after-tax income.
--I noticed several months back (~coincidental with covid start?) that WTCOX's TEY* had dropped to below VWLUX's (LT national muni)... and surprise, below VWIUX's (IT national muni) too (a form of single-state risk?). So all of my new bond money has gone to VWLUX recently. (* I check TEYs monthly before rebalancing. SBH doesn't publish WTCOX's current SEC yield on its website so I much call and ask.)
--The WTCOX TLH sales' proceeds will go to VWLUX, too.

I would like to keep some WTCOX... just because. The plan is to TLH until the remaining shares have <10% loss, and wait/hope for economy to turn around.


Fiddling with TLHing and moving muni principal for higher after-tax income keeps my idle hands busy... so I don't make a worse mistake elsewhere.

I continue to enjoy recording monthly muni dividends.

[dratkinson]

Time line.
--2015.  Bought Denver Investments' (privately held) Westcore fund: WTCOX.  WTCOX returning after-tax >VWLUX >TBM.
--2017.  Denver Investments won 2x fund management Lipper awards (one for WTCOX). See: https://www.globenewswire.com/de/news-r ... wards.html
--2018.  Westcore Investments was acquired by Segall Bryant & Hamill (SBH, privately held, Chicago IL).
--2019 Q4. COVID started.  WTCOX managers increased cash (to ~13%) to pay redemptions, with corresponding drop in dividends (VWLUX>TBM>WTCOX).
--2021.  SBH was acquired by CI Financial Corp (CI, privately held, Canada).
--2022.  I TLHed ~half of WTCOX.  Kept remainder hoping it and economy would soon recover.
--2024 Q3.  I bought a little more WTCOX.  Why?  To keep account active while finishing TLHing outside of wash sale window, before economy recovers.
--2025.  I received a supplement to current summary prospectus saying CI is to be acquired by Mubadala Investment Company (privately held, Abu Dhabi).
Search: https://www.google.com/search?q=Mubadal ... ncial+Corp

Plan for 2025. (1) Finish my TLHing.  (2) Watch for economy to recover and hope WTCOX's managers reduce cash so more invested/dividends flow my way.

Unless the growing number of mouths to feed means that will never happen. In which case I'll chalk this up to experience and dismount a dead horse.

[sycamore]

Thanks for sharing your story.

But -- oof! -- what a journey. And WTCOX seems to have a high ER 0.65%, is it worth the savings on CO state tax?

Time line.
--2022.  I TLHed ~half of WTCOX.  Kept remainder hoping it and economy would soon recover.

[...]

Plan for 2025. (1) Finish my TLHing.  (2) Watch for economy to recover and hope WTCOX's managers reduce cash so more invested/dividends flow my way.

The "hope" parts above stand out. Maybe one of the behavior pitfalls has befallen you?

How about ripping off the bandaid and move it all to a Vanguard muni fund? Good luck!

[dratkinson]

Thanks for sharing your story.

But -- oof!  -- what a journey. And WTCOX seems to have a high ER 0.65%, is it worth the savings on CO state tax?

...

The "hope" parts above stand out.  Maybe one of the behavior pitfalls has befallen you?

How about ripping off the bandaid and move it all to a Vanguard muni fund?  Good luck!

I acknowledge your points and selling is my backup plan.

But since the damage is done and it has not gotten worse, there's no reason to act too quickly.  Why?  My maximum loss/share is <15%, which we're taught to expect---"during a crash, bonds can lose 5-15%"---which happened without my notice some time after COVID started.

My plan last year.  I harvested half the loss (shares with >5% loss), planned to harvest the other half this year (shares with <5% loss), but added a little new money to keep the account active while I see what happens.


WTCOX's expected out-performance.  Found my spreadsheet (2015) where I analyzed sample tax returns to wag after-tax income produced by different bond candidates: ST/IT/LT, treasury/munis/TBM/corporate, before/after SS.  At the time, I was in 25% fed, 4.5% state tax brackets.  For each bond candidate, I extracted from tax software and computed: After-tax income = total income (taxable + muni) -fed tax owed -state tax owed.

WTCOX's ER has remained 0.65% (baked into SEC yield), which included 0.20% fee waiver which I assumed was not waived so subtracted from SEC yield to create its tax return input.  I compared all bond candidate results to TBM.  At that time:
--VWIUX (IT national muni) was expected to return 1.2% >TBM.*
--VWLUX (LT national muni) was expected to return 4.9% >TBM.
--WTCOX (CO single-state muni) was expected to return 6.6% >TBM (6.6/4.9=135%, so 35% >VWLUX, believed that to be worth the risk).

* VWIUX does not always outperform TBM in my tax bracket, but generally outperforms 5yr CDs so keep 3yrs as extended-tier EF vs taxable CDs. Plus its NAV is stable enough that I've never felt the need to TLH.

I checked sample tax return results again after 2017 tax code change.  Same expected results: WTCOX >VWLUX >TBM.

Sometime in 2020, noticed WTCOX under-performing and began rebalancing into VWLUX.  And later into VMFXX when it was buoyed by inverted yields.


Worst case.  As things go, I've lost less% with WTCOX, than when Vanguard's "gold and precious metals" fund changed direction and became a "contra-commodities fund with a precious metals tilt"---whatever that means.  Which I couldn't TLH.  Oof.


Plan this year:
--Harvest remaining losses (remaining lots: <5% loss on each), but leave the new money to keep account active.
--Monthly before rebalancing, check "treasury daily yield curve rates": https://home.treasury.gov/resource-cent ... value=2024
--Give it ~1 year after interest-rates return to normal (no inverted-yield in any term, above), and if still under-performing, then sell.


Lesson learned.  I think my lesson learned is, "Don't buy funds from small fund families, instead buy from large fund families that can better withstand redemptions."  Why?

Because other than managers raising cash reserves to handle redemptions (allowed), there is nothing too onerous in prospectus*.

* ER does seem high, but not too unreasonable for a small fund (according to BH-recommended books).  Also, ER is baked into SEC yield so was included in input to create sample tax return, which predicted out-performance before I bought.  And reality matched predicted outcome ...until COVID, when it didn't.  Such is life.


Documented because it's been an interesting ride to research and own.  Besides, my idle hands playing (and doing foolish things?) with bonds, keeps me from doing worse with stocks.



Edit. Clarity, completeness.

[grabiner]

WTCOX's expected out-performance.  Found my spreadsheet (2015) where I analyzed sample tax returns to wag after-tax income produced by different bond candidates: ST/IT/LT, treasury/munis/TBM/corporate, before/after SS.  At the time, I was in 25% fed, 4.5% state tax brackets.  For each bond candidate, I extracted from tax software and computed: After-tax income = total income (taxable + muni) -fed tax owed -state tax owed.

WTCOX's ER has remained 0.65% (baked into SEC yield), which included 0.20% fee waiver which I assumed was not waived so subtracted from SEC yield to create its tax return input.  I compared all bond candidate results to TBM.  At that time:
--VWIUX (IT national muni) was expected to return 1.2% >TBM.*
--VWLUX (LT national muni) was expected to return 4.9% >TBM.
--WTCOX (CO single-state muni) was expected to return 6.6% >TBM (6.6/4.9=135%, so 35% >VWLUX, believed that to be worth the risk).

The right comparison is the after-tax difference, not the ratio. When Treasury yields are 1%, a bond fund yielding 2% has double the expected return. When Treasury yields are 4%, a bond fund yielding 5% has only a 25% higher expected return. But either one is an equally good or bad decision, as you are getting an extra $1K for taking the same risk with $100K invested.

Plan this year:
--Harvest remaining losses (remaining lots: <5% loss on each), but leave the new money to keep account active.
--Monthly before rebalancing, check "treasury daily yield curve rates": https://home.treasury.gov/resource-cent ... value=2024
--Give it ~1 year after interest-rates return to normal (no inverted-yield in any term, above), and if still under-performing, then sell.

Timing the bond market doesn't work, and this isn't actually a timing issue anyway. if you switch from one muni fund to another with similar duration, the effect of changes in bond yields will be the same in both the old and new funds.

What will cause WTCOX to underperform Vanguard funds of the same duration in some situations has nothing to do with the quality of the management. Since the fund holds higher-yielding bonds, it is taking more risk, and will lose more in an economic decline. (You can see the same effect with Vanguard funds; Vanguard High-Yield Tax-Exempt, which is not actually a junk bond fund but has a higher yield than the other funds, underperformed them when the stock market crashed in 2008; conversely, Treasuries did very well in 2008.)

Currently, WTCOX and VWLUX have about the same SEC yield, but that yield is after expenses; the Vanguard fund has a lower pre-expense yield and thus should still hold less-risky bonds. At the time of the original post, WTCOX had a higher yield even after expenses, so it should be expected to outperform VWLUX on average but with extra risk. Now, the funds should have similar expected returns (with WTCOX slightly better for you because the CO tax is about 0.15%) but WTCOX still has more risk.