Funds without dividends

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asdfgf
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Funds without dividends

Post by asdfgf » Fri Feb 09, 2018 9:51 pm

I have a substantial amount of Berkshire Hathaway stock from a long time ago, when I was less bogleheadish than I am now. One of the things I like about it is that it doesn't generate a dividend, so it essentially grows tax-free.

BRK is more diversified than most companies, but it still carries more risk than a mutual fund that consists of many more companies.

Are there any mutual funds that are entirely devoted to solid companies that don't pay dividends, so the fund itself won't generate taxable dividends (I understand there would still probably be some capital gains because of the buying and selling that occurs within the fund). If they are low-cost/indexed, that would be even better.

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Watty
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Re: Funds without dividends

Post by Watty » Fri Feb 09, 2018 10:27 pm

Look for funds with the words "tax managed" in the fund name. Vanguard has several of them.

alex_686
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Re: Funds without dividends

Post by alex_686 » Fri Feb 09, 2018 10:29 pm

I don't think so and I don't think there could be so.

In the current environment, portfolio mangers are encouraged to maximize total returns, not tax adjusted returns. Partly this is because there are no real good tax adjusted return indexes out there, partly because tax adjusted return index are hard to compute. Mostly because the portfolio manager has to maximize return for all investors, so they would need to consider investors who were investing in tax advantaged accounts.

It could be done. Tax managed funds are a tiny slice of the overall market. This would be a tiny slice of that tiny slice. You have to put heavy restrictions on a portfolio manager, you are slicing off a huge portion of investable companies. Then dividend free companies all of a sudden declare a dividend. The manager would have to sell and that would trigger big tax gains.

FYI, I have had to deal with managers who tried to invest in REITs. REITs only declare their REIT status the following year. That was a fun game. Sigh.

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TD2626
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Re: Funds without dividends

Post by TD2626 » Fri Feb 09, 2018 10:43 pm

A hypothetical non-dividend fund would potentially not be diversified enough. It may have a growth tilt, as well -
though value is not synonymous with high dividend yeild. Remember single company stocks are considered very risky, also. Maybe do calculations to see if the tax savings from a low dividend fund are "worth it" given that a tax managed fund may have a higher expense ratio.

asdfgf
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Re: Funds without dividends

Post by asdfgf » Fri Feb 09, 2018 10:53 pm

Watty wrote:
Fri Feb 09, 2018 10:27 pm
Look for funds with the words "tax managed" in the fund name. Vanguard has several of them.
I think (but I'm not sure) those are mostly managed through minimizing capital gains (although I assume they probably try to minimize dividends as well). But the yield is still not that much better than your generic stock index fund. For example dividend yield of Vanguard Total Stock Market Admiral is 1.68% while Vanguard Tax Managed Balanced has an even higher yield of 1.82%. The tax managed small cap and large cap are 1.22% and 1.55% respectively, so even those aren't that much better than just total market (from a dividend minimization standpoint).

Wagnerjb
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Re: Funds without dividends

Post by Wagnerjb » Sat Feb 10, 2018 10:59 am

asdfgf wrote:
Fri Feb 09, 2018 10:53 pm
Watty wrote:
Fri Feb 09, 2018 10:27 pm
Look for funds with the words "tax managed" in the fund name. Vanguard has several of them.
I think (but I'm not sure) those are mostly managed through minimizing capital gains (although I assume they probably try to minimize dividends as well). But the yield is still not that much better than your generic stock index fund. For example dividend yield of Vanguard Total Stock Market Admiral is 1.68% while Vanguard Tax Managed Balanced has an even higher yield of 1.82%. The tax managed small cap and large cap are 1.22% and 1.55% respectively, so even those aren't that much better than just total market (from a dividend minimization standpoint).
You are correct that virtually all "tax managed" funds are only trying to minimize capital gains. I have seen one or two that talk about lowering the dividend yield in their strategy statement (DFA?) but even one of those stopped managing the dividend at one point.

I am not aware of any mutual funds that have a zero dividend, or even a dividend close to zero. If a fund manager (or you in your own taxable portfolio) only purchased zero-dividend stocks, the portfolio would not be well diversified.

Best wishes.
Andy

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whodidntante
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Re: Funds without dividends

Post by whodidntante » Sat Feb 10, 2018 11:20 am

You could obtain the list of stocks in your favorite index, sort by dividend yield, and remove anything greater than 0. Then buy those. You can use one of the platforms that allows you to trade a basket in one step, like M1 or Motif, or you could use one of the perpetual free trade brokers like Merrill Edge. Commissions are also low at Interactive Brokers.

You could put those holdings into Morningstar or Personal Capital to see how far you are straying from a float weighted index.

Please post the resulting index if you do that; I would like to see it.

rkhusky
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Re: Funds without dividends

Post by rkhusky » Sat Feb 10, 2018 11:22 am

Use a growth fund in taxable and its value partner in tax-advantaged.

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dm200
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Re: Funds without dividends

Post by dm200 » Sat Feb 10, 2018 11:23 am

There are some mutual funds that do not pay dividends - but for a "bad" reason.

In some high expense ratio funds, the expenses are taken out of the dividends of the holdings. I noticed this "situation" at a former employer's 401k plan.

1nv35t
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Re: Funds without dividends

Post by 1nv35t » Sat Feb 10, 2018 12:57 pm

asdfgf wrote:
Fri Feb 09, 2018 9:51 pm
Are there any mutual funds that are entirely devoted to solid companies that don't pay dividends, so the fund itself won't generate taxable dividends.
Wish they (non dividend) were more popular for those of us that see dividends/regular income as a cost/tax risk rather than a benefit. Slicing your own DIY dividend out of total returns is much better, amount and timing tailored to your own needs and tax efficiencies.

I intentionally target low/no yield, but most of those assets are unavailable to you over here in the UK. For instance Index Total Return Swaps, fully funded spreadbets ...etc. Diversifying across the likes of those (including BRK-B) and the single asset risks can be diluted down to being acceptable whilst achieving the desired effect/objective.

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warowits
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Re: Funds without dividends

Post by warowits » Sat Feb 10, 2018 1:06 pm

whodidntante wrote:
Sat Feb 10, 2018 11:20 am
You could obtain the list of stocks in your favorite index, sort by dividend yield, and remove anything greater than 0. Then buy those. You can use one of the platforms that allows you to trade a basket in one step, like M1 or Motif, or you could use one of the perpetual free trade brokers like Merrill Edge. Commissions are also low at Interactive Brokers.

You could put those holdings into Morningstar or Personal Capital to see how far you are straying from a float weighted index.

Please post the resulting index if you do that; I would like to see it.
My head nearly exploded when you posted this. I may have to start an M1 account after all.
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

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grabiner
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Re: Funds without dividends

Post by grabiner » Sat Feb 10, 2018 5:30 pm

Watty wrote:
Fri Feb 09, 2018 10:27 pm
Look for funds with the words "tax managed" in the fund name. Vanguard has several of them.
Vanguard Tax-Managed Capital Appreciation does not completely avoid dividends; it selects stocks for lower dividend yields, while still tracking the Russell 1000 index.

However, it isn't really worthwhile for most investors. The tax cost of Total Stock Market Index or 500 Index is low enough that the extra expenses of Tax-Managed Capital Appreciation are more than the difference except in the top tax bracket. See Tax-managed fund comparison on the wiki.
Wiki David Grabiner

asdfgf
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Re: Funds without dividends

Post by asdfgf » Sat Feb 10, 2018 5:45 pm

whodidntante wrote:
Sat Feb 10, 2018 11:20 am
You could obtain the list of stocks in your favorite index, sort by dividend yield, and remove anything greater than 0. Then buy those. You can use one of the platforms that allows you to trade a basket in one step, like M1 or Motif, or you could use one of the perpetual free trade brokers like Merrill Edge. Commissions are also low at Interactive Brokers.

You could put those holdings into Morningstar or Personal Capital to see how far you are straying from a float weighted index.

Please post the resulting index if you do that; I would like to see it.
Sounds like an interesting idea. I might play around with this if I've got some time.

desafinado
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Re: Funds without dividends

Post by desafinado » Sat Feb 10, 2018 5:45 pm

What about something like 50/50 short term treasuries and leaps, or whatever allocation meets your taste?
Last edited by desafinado on Sat Feb 10, 2018 5:46 pm, edited 1 time in total.

aristotelian
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Re: Funds without dividends

Post by aristotelian » Sat Feb 10, 2018 5:46 pm

I searched for one and couldn't find one. Seems like an obvious idea for a niche ETF. I think you would have to go DIY. You could put together something pretty decent from this list... http://www.dividend.com/investor-resour ... dividends/

1nv35t
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Re: Funds without dividends

Post by 1nv35t » Sat Feb 10, 2018 8:20 pm

asdfgf wrote:
Sat Feb 10, 2018 5:45 pm
whodidntante wrote:
Sat Feb 10, 2018 11:20 am
You could obtain the list of stocks in your favorite index, sort by dividend yield, and remove anything greater than 0. Then buy those. You can use one of the platforms that allows you to trade a basket in one step, like M1 or Motif, or you could use one of the perpetual free trade brokers like Merrill Edge. Commissions are also low at Interactive Brokers.

You could put those holdings into Morningstar or Personal Capital to see how far you are straying from a float weighted index.

Please post the resulting index if you do that; I would like to see it.
Sounds like an interesting idea. I might play around with this if I've got some time.
Kenneth French's data includes no dividend set history, one point to note is (IIRC) that whilst cap weighted non div was one if not the worst, equal weighted non div was as good as high dividend yield. I did run some UK equal weighted non div backtests a number of years back, reviewing/rebalancing once yearly and the results were acceptable, however the effort and costs where prohibitive for a single investor to do on their own.

There's a hole in the market for such a fund, but AFAIK no one has yet filled that.

EDIT : http://mba.tuck.dartmouth.edu/pages/fac ... brary.html and http://mba.tuck.dartmouth.edu/pages/fac ... -P_CSV.zip

Around halfway down there's Equal Weight Returns -- Annual from January to December and the first column of data is for <= 0 dividend stocks.

Code: Select all

1928	58.6
1929	-45.96
1930	-45.98
1931	-43.37
1932	33.75
1933	183.89
1934	15.18
1935	79.55
1936	74.23
1937	-54.21
1938	30.17
1939	-2.21
1940	-13.99
1941	-12.66
1942	63.63
1943	135.88
1944	64.77
1945	99.3
1946	-23.76
1947	-7.18
1948	-7.71
1949	19.5
1950	63.6
1951	5.33
1952	2.41
1953	-15.89
1954	77.76
1955	21.82
1956	-4.31
1957	-29.16
1958	96.73
1959	15.78
1960	-11.62
1961	27.65
1962	-19.52
1963	12.78
1964	18.73
1965	53.45
1966	-8.53
1967	151.82
1968	62.36
1969	-36.15
1970	-28.65
1971	17.95
1972	-0.82
1973	-43.79
1974	-28.53
1975	77.7
1976	58.05
1977	32.47
1978	40.73
1979	56.45
1980	56.59
1981	-12.02
1982	20.71
1983	39.62
1984	-23.36
1985	17.93
1986	0.12
1987	-12.51
1988	17.58
1989	7.92
1990	-24.31
1991	64.52
1992	32.29
1993	29.47
1994	-6.16
1995	31.38
1996	15.26
1997	12.49
1998	-4.66
1999	51.87
2000	-18.64
2001	27.28
2002	-21.85
2003	96.46
2004	22.04
2005	2.46
2006	16.37
2007	-6.74
2008	-49.97
2009	89.7
2010	30.23
2011	-14.68
2012	18.56
2013	49.92
2014	0.79
2015	-11.58
2016	11.68
2017	18.4
I make that 12.82% annualised. Average 20.5%; Median 16%; And a very high standard deviation of 44.8%

Contrast that for instance with Small Cap Value that over the same years had a 12.2% CAGR, 15.3% average, 17.5% median; 26.3% standard deviation.

Instead of a 30/70 SCV/STT blend (somewhat along the lines of a Larry Portfolio), 20/80 equal weight non-div/STT pretty much aligned to being the same. Instead of income producing STT, hold a 50/50 barbell of BRK-B and Gold (20% non div stocks, 40% BRK, 40% gold). And I suspect it would look something like this and with zero dividends/interest.

Here's what I see Image

shess
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Re: Funds without dividends

Post by shess » Sat Feb 10, 2018 10:05 pm

asdfgf wrote:
Fri Feb 09, 2018 9:51 pm
I have a substantial amount of Berkshire Hathaway stock from a long time ago, when I was less bogleheadish than I am now. One of the things I like about it is that it doesn't generate a dividend, so it essentially grows tax-free.

BRK is more diversified than most companies, but it still carries more risk than a mutual fund that consists of many more companies.

Are there any mutual funds that are entirely devoted to solid companies that don't pay dividends, so the fund itself won't generate taxable dividends (I understand there would still probably be some capital gains because of the buying and selling that occurs within the fund). If they are low-cost/indexed, that would be even better.
I once worried about such things. Eventually, I questioned why I was worried about it, and realized that the issue was more that I'm OCD about some things than that it was actually a functional problem. What especially concerned me was that I found myself making arguments about which things to invest in based on this kind of tax consideration, which is a subtle error (just because you can easily measure something does not make it more important). Since then I've come to appreciate that receiving dividends off my VTI and others shows how far I've come in building my portfolio, and they also provide a stream of investable new cash to keep things balanced over time. Sure, the new investments don't have as low of a basis as the older ones, but the flip side of that is that if/when I need to generate some cash I can sell those higher-basis shares and realize fewer capital gains.

MrPotatoHead
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Re: Funds without dividends

Post by MrPotatoHead » Sun Feb 11, 2018 4:03 pm

You could and perhaps should roll your own. Jack would approve. Use the Value Line approach to set up your initial portfolio. The trick comes in writing an IPS that will allow you to manage the portfolio without over managing it. Once again, I suggest leveraging Value Line and create your own metrics that you can track via their publications.

With .03% ERs available out there, it is hard for me to justify rolling my own…but if ERs were higher I would strongly consider it. In your case you have a specific purpose in mind for which the market has no ready answer. Roll your own, the tools are readily available for free at your local library and free at Value Line’s website. I would certainly suggest you read their free booklets, especially their The Complete Overview of the Value Line Investment Survey and Value Line’s Guide To Planning An Investment Strategy.

Cheers...

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