Tax Managed International

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AzRunner
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Tax Managed International

Post by AzRunner » Wed Apr 09, 2014 11:21 pm

I was a happy owner of Vanguard Tax Managed International. It has merged with Vanguard Developed Markets (outside North America), yet the fund symbol is still VTMGX, so I'm assuming that its performance was better than the Developed Markets' fund, even though the Tax Managed strategy is being abandoned. Going forward the Developed Market FTSE index will be followed. I guess with ETFs, the International Tax Managed Strategy was viewed to be less viable than the Developed Markets that has an ETF share class. How do other owners of Tax Managed International feel about the change?

Norm

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Re: Tax Managed International

Post by sport » Wed Apr 09, 2014 11:37 pm

I liked it the way it was. This does not seem to be an improvement.
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Re: Tax Managed International

Post by rob » Wed Apr 09, 2014 11:52 pm

Look at my past posts on this topic - unhappy does not begin to cover it :-)

* The ETF class was on tax managed because in the past depths of time, total internationmal was a fund of funds and could not get an ETF class. IMO that is the mistake they are correcting at the expense of the tax managed investor.
* None of the arguments I have seen written make sense for the tax manasged investor - they only make sense for others. I feel I have taken a hit to help some other people.

They have me in handcuff's because of cap gains...... but it's certainly going to change my future interaction with Vanguard.
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Re: Tax Managed International

Post by Dale_G » Thu Apr 10, 2014 12:01 am

I just checked my FTSE Developed Markets (VEA) 1099-Div form. The 2013 dividends were 100% qualified, so Vanguard certainly has not abandoned all tax management of the fund.

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Re: Tax Managed International

Post by rob » Thu Apr 10, 2014 12:13 am

Dale_G wrote:I just checked my FTSE Developed Markets (VEA) 1099-Div form. The 2013 dividends were 100% qualified, so Vanguard certainly has not abandoned all tax management of the fund.

Dale
Disagree... by definition they must now follow the index.... Tax manage within that sure... but a reversion to non QDI world would leave the fund no option but to follow the index wheras the tax managed fund had an option.
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Re: Tax Managed International

Post by livesoft » Thu Apr 10, 2014 5:21 am

I am trying to see where anybody is taking a hit by this non-change. The ticker symbol hasn't even changed. It just seems like some folks are jumping the gun with whining about some future that isn't going to happen. Frankly, these posts about "change" are confusing because nothing really has changed.

VTMGX has been following the index for years, probably ever since VEA came into existence and became a share class of Tax-managed International. I suppose the time to complain was in 2007.

I tax loss harvested the mutual fund tax-managed international VTMGX years ago into VFWIX. Then that to VEA, then that to VEU. At the present time I own VEU, VEA, VGTSX and other international funds.
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Re: Tax Managed International

Post by rob » Thu Apr 10, 2014 9:20 am

livesoft wrote:I am trying to see where anybody is taking a hit by this non-change. The ticker symbol hasn't even changed. It just seems like some folks are jumping the gun with whining about some future that isn't going to happen. Frankly, these posts about "change" are confusing because nothing really has changed.
The tax managed fund has CHANGED it's objectives - Vanguad states that in the documentation for the merger. I'm lost what has not changed: The tax managed fund has gone and is replaced with a straight index fund. The QDI has been reduced from 100 to 75 using latest figures, not some mythical future event.

Your point on the future is fair: No one knows the future BUT the fund now cannot react to tax changes since it must now follow the index - the former tax managed fund had that option and due to the change in objective, what I invested in no longer has that option. Whether or not it took advantage of that flexibility in the past is irrelevant, although the fact Vanguard indicates the portfolio was re-aligned to the index prior to th merger, implies that it did in some way otherwise that step would not have been necessary.

The tickers have nothing to do with the objectives of the fund. Can we maybe use less projective words than "whining"?
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Re: Tax Managed International

Post by sport » Thu Apr 10, 2014 9:43 am

livesoft wrote:I am trying to see where anybody is taking a hit by this non-change. The ticker symbol hasn't even changed. It just seems like some folks are jumping the gun with whining about some future that isn't going to happen. Frankly, these posts about "change" are confusing because nothing really has changed.

VTMGX has been following the index for years, probably ever since VEA came into existence and became a share class of Tax-managed International. I suppose the time to complain was in 2007.

I tax loss harvested the mutual fund tax-managed international VTMGX years ago into VFWIX. Then that to VEA, then that to VEU. At the present time I own VEU, VEA, VGTSX and other international funds.
Tax Managed = managed, by definition.
Index = passive = not managed, by definition.
How can these be the same?

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Re: Tax Managed International

Post by livesoft » Thu Apr 10, 2014 10:30 am

rob wrote:The QDI has been reduced from 100 to 75 using latest figures, not some mythical future event.
Got link?
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Re: Tax Managed International

Post by rob » Thu Apr 10, 2014 11:21 am

livesoft wrote:
rob wrote:The QDI has been reduced from 100 to 75 using latest figures, not some mythical future event.
Got link?
No - I was talking to my rep and they had the latest figures for both funds......
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Re: Tax Managed International

Post by Ketawa » Thu Apr 10, 2014 12:59 pm

livesoft wrote:
rob wrote:The QDI has been reduced from 100 to 75 using latest figures, not some mythical future event.
Got link?
As far as I can tell, the information is no longer available on the standard Vanguard QDI pages. Tax-Managed International has been wiped from the tables and Developed Markets Index shows 100% since the name of Tax-Managed International changed to Developed Markets Index. However, the historical data is available in the wiki.

http://www.bogleheads.org/wiki/Vanguard ... tributions

QDI has been about 77% the last three years.

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Re: Tax Managed International

Post by AzRunner » Thu Apr 10, 2014 10:03 pm

Rob, jsl11,

Thanks for carrying the water on this issue. I agree with both of you that the fund is no longer what we chose to invest in.

Both of the funds had billions in assets, around $23 billion in Tax Managed and 16.5 in Developed Markets.

I'm thinking that Vanguard just decided that it wanted out of the tax managed international space. I wonder if a similar fate awaits tax managed small cap, another fund I hold.

Norm

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Murray Boyd
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Re: Tax Managed International

Post by Murray Boyd » Thu Apr 10, 2014 10:20 pm

It always bugged me that Tax-Managed International excluded Canada, so there's that at least.

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Re: Tax Managed International

Post by Ketawa » Thu Apr 10, 2014 10:33 pm

Murray Boyd wrote:It always bugged me that Tax-Managed International excluded Canada, so there's that at least.
So does the new version of the fund. It follows the FTSE Developed ex North America Index.

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Re: Tax Managed International

Post by sport » Fri Apr 11, 2014 9:32 am

AzRunner wrote:Rob, jsl11,

Thanks for carrying the water on this issue. I agree with both of you that the fund is no longer what we chose to invest in.

Both of the funds had billions in assets, around $23 billion in Tax Managed and 16.5 in Developed Markets.

I'm thinking that Vanguard just decided that it wanted out of the tax managed international space. I wonder if a similar fate awaits tax managed small cap, another fund I hold.

Norm
I complained to Vanguard about the change when it was announced. You can see how much good that did. :x
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AzRunner
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Re: Tax Managed International

Post by AzRunner » Fri Apr 11, 2014 3:35 pm

I spoke with my Vanguard representative today. Since Vg moved to the new index benchmark providers about a year and a half ago, VTMGX has been following the FTSE Developed Markets Index. We now formally lose the potential to deviate from the index, but Vanguard is keen about the linked VEA ETF.

In general, ETFs doomed the tax managed fund model at Vanguard, IMHO. It is far more straightforward to have an ETF based on an index versus breaking ground to try to base an ETF on an actively managed tax managed strategy.

With the ETF linked to the fund, it does have the potential to sell off higher priced stock in the creation/redemption process, so that may help our tax efficiency, although it is unclear how much benefit that provides versus the tax managed capability. But, as stated, that was pretty much abandoned over a year ago.

Norm

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Re: Tax Managed International

Post by rob » Fri Apr 11, 2014 3:57 pm

AzRunner wrote:But, as stated, that was pretty much abandoned over a year ago.
One problem is IMO that Vanguard refuses to write anything down about this stuff..... Sure the ETF helped tax efficiency, sure the bulk of the fund was from the ETF share class, sure they might get some of the reduced TDI offset from security lending, sure they might not have been actively tax managed since the ETF share class or change in tracking index and on and on. Tax Man fund investors deserved more respect and at the very least some info; instead we get reams and reams of paper that say nothing - they just talked about the mechanical portions of the merger. As I said earlier... I expect the ETF is the real reason for the hijack.

Oh well... I just have to plan best I can knowing that Vanguard will act in it's own interests and change fund objectives when they want and that crap about stay the course is just marketing info :?
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Re: Tax Managed International

Post by gd » Fri Apr 11, 2014 4:06 pm

So what I'm seeing is that either 1) the "tax managed" bit was empty marketing and removed with no impact to customers, or 2) they're sweeping under the rug the point that holders of the fund should plan on future increases in the tax liabilities associated with the fund. Am I missing something here?

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Re: Tax Managed International

Post by ted123 » Fri Apr 11, 2014 4:26 pm

Tax-managed international has always sought to track the index. This is from an SEC filing back in 2005:
The Fund purchases stocks included in the Morgan Stanley Capital
International/(R)/ Europe, Australasia, Far East (MSCI/(R)/ EAFE/(R)/)Index,
which is made up of approximately 1,066 common stocks of companies located in 18
countries in Europe, Australia, Asia, and the Far East. The Fund uses
statistical methods to "sample" the Index, aiming to closely track its
investment performance.
I believe that language has been in its filings going back to its inception (definitely back to 2000).

So, Vanguard didn't have the ability to actively manage the fund, as some here have suggested.
gd wrote:So what I'm seeing is that either 1) the "tax managed" bit was empty marketing and removed with no impact to customers, or 2) they're sweeping under the rug the point that holders of the fund should plan on future increases in the tax liabilities associated with the fund. Am I missing something here?
Yes, you're missing that the tax-management aspect of the fund has become obsolete. It used to be that the tax-managed bit was that, unlike Vanguard's equivalent index fund, VTMGX was not a fund of funds. VTMGX had tax advantages compared to the fund of funds. Since Vanguard no longer uses the fund of funds approach with its international indexes, the relative tax advantage of VTMGX disappeared.

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Re: Tax Managed International

Post by Ketawa » Fri Apr 11, 2014 6:04 pm

ted123 wrote:Tax-managed international has always sought to track the index. This is from an SEC filing back in 2005:
The Fund purchases stocks included in the Morgan Stanley Capital
International/(R)/ Europe, Australasia, Far East (MSCI/(R)/ EAFE/(R)/)Index,
which is made up of approximately 1,066 common stocks of companies located in 18
countries in Europe, Australia, Asia, and the Far East. The Fund uses
statistical methods to "sample" the Index, aiming to closely track its
investment performance.
I believe that language has been in its filings going back to its inception (definitely back to 2000).

So, Vanguard didn't have the ability to actively manage the fund, as some here have suggested.
gd wrote:So what I'm seeing is that either 1) the "tax managed" bit was empty marketing and removed with no impact to customers, or 2) they're sweeping under the rug the point that holders of the fund should plan on future increases in the tax liabilities associated with the fund. Am I missing something here?
Yes, you're missing that the tax-management aspect of the fund has become obsolete. It used to be that the tax-managed bit was that, unlike Vanguard's equivalent index fund, VTMGX was not a fund of funds. VTMGX had tax advantages compared to the fund of funds. Since Vanguard no longer uses the fund of funds approach with its international indexes, the relative tax advantage of VTMGX disappeared.
I don't understand what you're trying to say here. VEA was a share class of the Tax-Managed International Fund. The fund's goal was to follow the MSCI EAFE index while minimizing taxes, and it clearly accomplished this since both always had 100% qualified dividends. I believe it also had a lower dividend yield in general. The Developed Markets Index Fund followed the MSCI EAFE index without any tax management and had about 75% qualified dividends. (Are we merely disagreeing over whether tax management is a form of active management? I can't tell.) Now investors that bought VEA, knowing that it was a share class of Tax-Managed International, are likely locked into a less tax-efficient investment due to the higher dividend taxation and yield.

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Re: Tax Managed International

Post by livesoft » Fri Apr 11, 2014 6:39 pm

I own VEA. I predict that going forward, VEA will have 100% qualified dividends. If that is true, would that satisfy the folks who are speculating?
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Re: Tax Managed International

Post by Ketawa » Fri Apr 11, 2014 7:01 pm

livesoft wrote:I own VEA. I predict that going forward, VEA will have 100% qualified dividends. If that is true, would that satisfy the folks who are speculating?
What is the basis for that prediction? As I pointed out, the former Developed Markets Index (VDMIX) did not have 100% qualified dividend income. Vanguard's description of its strategy still available on the web page:
The fund employs an indexing investment approach designed to track the performance of the FTSE Developed ex North America Index, which includes over 1300 common stocks of companies located in developed countries of Europe, Australia, Asia, and the Far East. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the Index, holding each stock in approximately the same proportion as its weighting in the index.
Vanguard's description of the strategy for Developed Markets Index Fund Investor Shares (VDVIX):
The fund employs an indexing investment approach designed to track the performance of the FTSE Developed ex North America Index, which includes over 1300 common stocks of companies located in developed countries of Europe, Australia, Asia, and the Far East. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Word for word, exactly the same. Tax-Managed International used to have a disclaimer that it would not follow the index exactly due to the tax management. It's no longer there. And I don't see how VEA can have a different percentage of qualified dividends from its other share classes, VDVIX and VTMGX, simply due to the ETF structure. For example, VSS and VFSVX had the same percentages last year.

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Re: Tax Managed International

Post by livesoft » Fri Apr 11, 2014 7:08 pm

Ketawa wrote:What is the basis for that prediction?
In order to answer my question, there is no need to have a basis for the prediction. It just doesn't matter.
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Re: Tax Managed International

Post by rob » Fri Apr 11, 2014 7:09 pm

ted123 wrote:So, Vanguard didn't have the ability to actively manage the fund, as some here have suggested.
While your there grabing quotes out of context... have another look about tax management. I know what I invested in... and there is even a hint in the former name.
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Re: Tax Managed International

Post by shum » Fri Apr 25, 2014 9:57 am

What's the bottom line? We wait and see, or . . .
-shum

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Re: Tax Managed International

Post by shum » Wed Apr 30, 2014 12:08 pm

We are looking for 100 percent qualified dividends. It appears it will now be 75. Time to move on?
-shum

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Re: Tax Managed International

Post by sport » Wed Apr 30, 2014 1:23 pm

shum wrote:We are looking for 100 percent qualified dividends. It appears it will now be 75. Time to move on?
If you sell at a gain, you may incur taxes. If you find a fund elsewhere that you like, the expenses will almost certainly be higher than at Vanguard, perhaps a lot higher. You have to consider all the differences, not just the status of the dividends.
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Re: Tax Managed International

Post by shum » Wed Apr 30, 2014 5:38 pm

You are right, Jeff. I'm thinking about VTIAX, although we are still stuck with the 75% problem. The foreign taxes help me enough in my current taxable income bracket to avoid paying any tax. However, the cost is higher (.14 vs .09). On the other hand, there is not much churning and I get a little exposure to emerging markets. The correlation with VTSAX is still pretty high (r = .88) at the moment. Long-term, perhaps the expense will move as others have. There are lots of variables. I too liked the tax-managed aspect it appears we have lost. I'm just looking for a fund I can hold forever and not expect many surprises from Vanguard. I appreciate your comments and there are lots of variables to consider. I'm not interested in ETF shares or moving from Vanguard funds because of the simplicity and low cost. I'm sorry to see the tax-managed aspect leaving us.

Thank you for your comments.
-shum

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Re: Tax Managed International

Post by DartThrower » Mon Sep 03, 2018 5:32 am

So here we are 4 years later. I am curious as to what people who owned Tax Managed International have done. As we know, international markets have not done particularly well over this time period so your gains may be muted. Were the dividends what you expected them to be? Was the overall performance of Developed Markets Index (VDMIX) disappointing all things considered? I had Tax Managed International and stayed the course through the change, and was just wondering what others' experiences were. VDMIX isn't as tax efficient as I had hoped it would be.
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Re: Tax Managed International

Post by shum » Mon Sep 03, 2018 10:05 am

I decided to follow Bogle’s Advice to drop international and stay with just two funds. If we turn into Japan, I’ll have to ride a long recovery hoping my heavy bond will help.
-shum

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Re: Tax Managed International

Post by sport » Mon Sep 03, 2018 10:05 am

DartThrower wrote:
Mon Sep 03, 2018 5:32 am
So here we are 4 years later. I am curious as to what people who owned Tax Managed International have done. As we know, international markets have not done particularly well over this time period so your gains may be muted. Were the dividends what you expected them to be? Was the overall performance of Developed Markets Index (VDMIX) disappointing all things considered? I had Tax Managed International and stayed the course through the change, and was just wondering what others' experiences were. VDMIX isn't as tax efficient as I had hoped it would be.
I have not done anything with it. I have long term gains equal to 44% of the value. I see no reason to take the tax hit.

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Re: Tax Managed International

Post by John151 » Mon Sep 03, 2018 2:21 pm

When I opened an account with Tax-Managed International back in 2011, all of my dividends were qualified. But now that the fund has morphed into Developed Markets Index, only 71% of my dividends are qualified, and the foreign tax credit has dropped as well. So I’m paying more in taxes than I was paying when the fund was Tax-Managed International. I’ve thought about selling my shares, but that would cost me a substantial amount in capital gains taxes, so I feel trapped in a fund I didn’t want.

I invested in a tax-managed fund because I wanted a fund that would be managed for taxes. Developed Markets Index doesn’t do that. I feel like a victim of bait-and-switch.

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Re: Tax Managed International

Post by DartThrower » Mon Sep 03, 2018 6:33 pm

John151 wrote:
Mon Sep 03, 2018 2:21 pm
I’ve thought about selling my shares, but that would cost me a substantial amount in capital gains taxes, so I feel trapped in a fund I didn’t want.
Same here.
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