Vanguard year end distributions - updated estimates

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Vanguard year end distributions - updated estimates

Post by boglesmind » Fri Dec 08, 2017 4:04 pm

Mark your calendar for year-end fund distributions

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Re: Vanguard year end distributions - updated estimates

Post by InvestorNewb » Fri Dec 08, 2017 7:45 pm

Are the estimates for the ETFs in the "net income available" column?

https://personal.vanguard.com/pdf/YEETF_122017.pdf

From what I recall last year, the actual amounts are usually higher than the estimates.
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Re: Vanguard year end distributions - updated estimates

Post by Artsdoctor » Fri Dec 08, 2017 8:05 pm

Thanks for the link. Yes, the estimates are usually slightly lower than what's actually paid out. Interesting to me that the Total Stock Market funds have only 94% qualified dividends, whereas Large Cap and S&P 500 both have 100%. Also, we tend to think of the FTSE ex-US fund as being a perfect TLH equivalent fund for the Total International fund but dividends for that fund are 72% QDI whereas the latter is only 66%. Not a deal-breaker, but it's a good example of how the classic Total Stock/Total International combination would be less efficient than the S&P 500/FTSE ex-US combination. And the Total Stock return was less than the larger stock index funds to boot.

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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Fri Dec 08, 2017 8:33 pm

Total Stock Market includes medium and small caps, S&P500 does not. It is not a matter of efficiency, but of being different funds.

QDI have a 61-day holding rule. Could that be the reason why VTSAX only declares 94% as such ?

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Re: Vanguard year end distributions - updated estimates

Post by abuss368 » Fri Dec 08, 2017 8:42 pm

Thank you. Great present at year end!
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Re: Vanguard year end distributions - updated estimates

Post by livesoft » Fri Dec 08, 2017 8:45 pm

The small-cap foreign fund VFSVX / VSS has even less qualified dividend income percentage than last year. Foreign mid/small caps are in VTIAX / VXUS, but not in VFWAX / VEU. So putting VSS / VFSVX in tax-advantaged might be worthwhile to some folks (like me!).
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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Fri Dec 08, 2017 8:55 pm

Thesaints wrote:
Fri Dec 08, 2017 8:33 pm
Total Stock Market includes medium and small caps, S&P500 does not. It is not a matter of efficiency, but of being different funds.

QDI have a 61-day holding rule. Could that be the reason why VTSAX only declares 94% as such ?
Probably not "the" reason. It more likely has to do with REITs.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Fri Dec 08, 2017 9:11 pm

triceratop wrote:
Fri Dec 08, 2017 8:55 pm
Probably not "the" reason. It more likely has to do with REITs.
But they pay dividends every year and for 2016 QDI ratio was 100%, IIRC

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Re: Vanguard year end distributions - updated estimates

Post by PinotGris » Fri Dec 08, 2017 9:17 pm

Artsdoctor wrote:
Fri Dec 08, 2017 8:05 pm
Also, we tend to think of the FTSE ex-US fund as being a perfect TLH equivalent fund for the Total International fund but dividends for that fund are 72% QDI whereas the latter is only 66%.
Last year I thought they were just 1% off. Wonder why Total International is so much less this year.

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Re: Vanguard year end distributions - updated estimates

Post by Artsdoctor » Fri Dec 08, 2017 9:39 pm

Thesaints wrote:
Fri Dec 08, 2017 8:33 pm
Total Stock Market includes medium and small caps, S&P500 does not. It is not a matter of efficiency, but of being different funds.

QDI have a 61-day holding rule. Could that be the reason why VTSAX only declares 94% as such ?
It is true that you can't compare the funds perfectly although the correlation is awfully close. There have been many years where QDI of Total Stock were 100%. I'm not crying over the 94% although it's the lowest I've seen as far back as I can remember--although I'm talking from memory.

The international funds also are a bit more off than usual.

I realize these are small points. However, considering that total stock market and total international funds are the workhorses of many people, some people will see a few hundred bucks in tax differential.

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Re: Vanguard year end distributions - updated estimates

Post by grabiner » Fri Dec 08, 2017 11:10 pm

chabil wrote:
Fri Dec 08, 2017 9:17 pm
Artsdoctor wrote:
Fri Dec 08, 2017 8:05 pm
Also, we tend to think of the FTSE ex-US fund as being a perfect TLH equivalent fund for the Total International fund but dividends for that fund are 72% QDI whereas the latter is only 66%.
Last year I thought they were just 1% off. Wonder why Total International is so much less this year.
Total International includes small-caps, which have significantly less QDI.
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Re: Vanguard year end distributions - updated estimates

Post by grabiner » Fri Dec 08, 2017 11:11 pm

Artsdoctor wrote:
Fri Dec 08, 2017 9:39 pm
Thesaints wrote:
Fri Dec 08, 2017 8:33 pm
Total Stock Market includes medium and small caps, S&P500 does not. It is not a matter of efficiency, but of being different funds.

QDI have a 61-day holding rule. Could that be the reason why VTSAX only declares 94% as such ?
It is true that you can't compare the funds perfectly although the correlation is awfully close. There have been many years where QDI of Total Stock were 100%. I'm not crying over the 94% although it's the lowest I've seen as far back as I can remember--although I'm talking from memory.
The IRS allows a fund with QDI over 95% to report 100%, so you will see a few 93%-94% values and other 100% values from the same fund if it averages 96%.
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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Sat Dec 09, 2017 4:55 am

Thesaints wrote:
Fri Dec 08, 2017 9:11 pm
triceratop wrote:
Fri Dec 08, 2017 8:55 pm
Probably not "the" reason. It more likely has to do with REITs.
But they pay dividends every year and for 2016 QDI ratio was 100%, IIRC
No that was 2015.
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Vanguard estimated year end distributions

Post by Crow Hunter » Sat Dec 09, 2017 9:29 am

[moved Crow Hunter's post into this existing thread - moderator prudent]

https://institutional.vanguard.com/VGAp ... tion122017

I didn't see this posted yet.

Enjoy!

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Re: Vanguard year end distributions - updated estimates

Post by country5rs » Sat Dec 09, 2017 10:10 am

I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?

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Re: Vanguard year end distributions - updated estimates

Post by jainn » Sat Dec 09, 2017 10:15 am

country5rs wrote:
Sat Dec 09, 2017 10:10 am
I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?
No, you should receive $132 in dividends, and with 0% QDI, that means the entire amount will be taxed at your ordinary federal tax rate (up to 43.4%), federal marginal tax rate...if it was instead 100% QDI, or close...then most if not all of the dividend income would be taxed at either 0%/15%/20%/23.8%, depending on your overall income....

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Re: Vanguard year end distributions - updated estimates

Post by jebmke » Sat Dec 09, 2017 10:21 am

jainn wrote:
Sat Dec 09, 2017 10:15 am
country5rs wrote:
Sat Dec 09, 2017 10:10 am
I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?
No, you should receive $132 in dividends, and with 0% QDI, that means the entire amount will be taxed at your ordinary federal tax rate (up to 43.4%), federal marginal tax rate...if it was instead 100% QDI, or close...then most if not all of the dividend income would be taxed at either 0%/15%/20%/23.8%, depending on your overall income....
or not reported on tax return at all if in a deferred account.
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Re: Vanguard year end distributions - updated estimates

Post by livesoft » Sat Dec 09, 2017 10:40 am

country5rs wrote:
Sat Dec 09, 2017 10:10 am
I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?
All dividends are ordinary dividends (unless from tax-exempt muni bonds or dividends paid as stock shares). Some of the ordinary dividends are qualified ordinary dividends. There are also non-qualified ordinary dividends. This confuses people. If the dividends are ordinary dividends and 0% of them are qualified ordinary dividends, then 100% of the dividends are non-qualified ordinary dividends.

So you will get about $132 in dividends which is the same as $132 in ordinary dividends which is the same as $132 in non-qualified ordinary dividends.

Got it?
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Re: Vanguard year end distributions - updated estimates

Post by country5rs » Sat Dec 09, 2017 10:42 am

Thanks jainn & jebmke

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Re: Vanguard year end distributions - updated estimates

Post by abuss368 » Sat Dec 09, 2017 12:03 pm

livesoft wrote:
Sat Dec 09, 2017 10:40 am
country5rs wrote:
Sat Dec 09, 2017 10:10 am
I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?
All dividends are ordinary dividends (unless from tax-exempt muni bonds or dividends paid as stock shares). Some of the ordinary dividends are qualified ordinary dividends. There are also non-qualified ordinary dividends. This confuses people. If the dividends are ordinary dividends and 0% of them are qualified ordinary dividends, then 100% of the dividends are non-qualified ordinary dividends.

So you will get about $132 in dividends which is the same as $132 in ordinary dividends which is the same as $132 in non-qualified ordinary dividends.

Got it?
Hi livesoft -

Very nice post and you are correct in that this does confuse many individuals. This is determined by the amount of time an investor holds shares in terms of if the ordinary dividend is qualified ordinary dividends and thus taxable at a lower rate.
Last edited by abuss368 on Sat Dec 09, 2017 2:39 pm, edited 1 time in total.
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Re: Vanguard year end distributions - updated estimates

Post by jebmke » Sat Dec 09, 2017 12:32 pm

livesoft wrote:
Sat Dec 09, 2017 10:40 am
country5rs wrote:
Sat Dec 09, 2017 10:10 am
I have about 100 REIT (VGSLX) funds in my portfolio. Net income availability says $1.32 but estimated QDI says 0%. Does that mean I am supposed to receive $132 ($1.32 x 100) but there won't be any dividend payout so I get $0 as dividend?
All dividends are ordinary dividends (unless from tax-exempt muni bonds or dividends paid as stock shares). Some of the ordinary dividends are qualified ordinary dividends. There are also non-qualified ordinary dividends. This confuses people. If the dividends are ordinary dividends and 0% of them are qualified ordinary dividends, then 100% of the dividends are non-qualified ordinary dividends.

So you will get about $132 in dividends which is the same as $132 in ordinary dividends which is the same as $132 in non-qualified ordinary dividends.

Got it?
I have also seen REIT funds make non-dividend distributions in addition to dividends. These can be even more confusing to taxpayers as they aren't reported at all but, if in a taxable account, need to be accounted for as a basis reduction for remaining shares. Non-dividend distributions sometimes pop out with GNMA funds as well it seems. But again, if the investments are in tax sheltered accounts this can all be ignored.
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Re: Vanguard year end distributions - updated estimates

Post by TIAX » Sat Dec 09, 2017 1:46 pm

Why do the institutional total stock market funds have 100% QDI whereas the rest (admiral, investor, etc.) have 94%? Don't they follow the same index?

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Re: Vanguard year end distributions - updated estimates

Post by livesoft » Sat Dec 09, 2017 2:34 pm

abuss368 wrote:
Sat Dec 09, 2017 12:03 pm
Very nice post and you are correct in that this does confuse many individuals. This is determined by the amount fo time and investor holds shares in terms of if the ordinary dividend is qualified ordinary dividends and thus taxable at a lower rate.
Actually, it is not strictly determined by the amount of time an investor hold shares although that can be part of it.

It "may be" determined by one's personal holding time, but the 1099-DIV won't necessarily show that because one's financial institution usually doesn't track that at first.

So I want to make it known that one can hold shares longer than the 61 days personal holding period and the dividends can still be non-qualified ordinary dividends.
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Re: Vanguard year end distributions - updated estimates

Post by abuss368 » Sat Dec 09, 2017 2:40 pm

livesoft wrote:
Sat Dec 09, 2017 2:34 pm
Actually, it is not strictly determined by the amount of time an investor hold shares although that can be part of it.

It "may be" determined by one's personal holding time, but the 1099-DIV won't necessarily show that because one's financial institution usually doesn't track that at first.

So I want to make it known that one can hold shares longer than the 61 days personal holding period and the dividends can still be non-qualified ordinary dividends.
livesoft -

As a result of the underlying companies paying a dividend - such as a REIT for example.
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Re: Vanguard year end distributions - updated estimates

Post by abuss368 » Sat Dec 09, 2017 2:42 pm

I have wonder why, with many indexes including REITs for example, the qualified dividends portion is not lower.

I am always interested in how this works behind the scenes and ultimately arrived at for reporting purposes.
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Re: Vanguard year end distributions - updated estimates

Post by grabiner » Sat Dec 09, 2017 6:19 pm

TIAX wrote:
Sat Dec 09, 2017 1:46 pm
Why do the institutional total stock market funds have 100% QDI whereas the rest (admiral, investor, etc.) have 94%? Don't they follow the same index?
They follow the same index, but they are not share classes of the same fund; each fund computes its own QDI. Dividends can become non-qualified if the fund held the stock for less than 61 days, or if it lent the stock out to a short-seller; the two funds might have done this with different stocks. Also, 94% is not far from 100% since the IRS allows any fund with 95% or more QDI to report it as 100%.
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Re: Vanguard year end distributions - updated estimates

Post by TIAX » Tue Dec 12, 2017 12:08 am

grabiner wrote:
Sat Dec 09, 2017 6:19 pm
TIAX wrote:
Sat Dec 09, 2017 1:46 pm
Why do the institutional total stock market funds have 100% QDI whereas the rest (admiral, investor, etc.) have 94%? Don't they follow the same index?
They follow the same index, but they are not share classes of the same fund; each fund computes its own QDI. Dividends can become non-qualified if the fund held the stock for less than 61 days, or if it lent the stock out to a short-seller; the two funds might have done this with different stocks. Also, 94% is not far from 100% since the IRS allows any fund with 95% or more QDI to report it as 100%.
Thanks grabiner. Why do you think funds following the same index would have different securities lending policies? I also don't see why one would violate the 61-day rule and the other wouldn't.

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Re: Vanguard year end distributions - updated estimates

Post by rkhusky » Tue Dec 12, 2017 8:41 am

abuss368 wrote:
Sat Dec 09, 2017 2:42 pm
I have wonder why, with many indexes including REITs for example, the qualified dividends portion is not lower.

I am always interested in how this works behind the scenes and ultimately arrived at for reporting purposes.
Isn't the percentage of REIT's in Total Stock less than 5%? And if the the percent of qualified dividends is 95% or more, it can be reported as 100%.

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Re: Vanguard year end distributions - updated estimates

Post by talzara » Tue Dec 12, 2017 4:32 pm

grabiner wrote:
Sat Dec 09, 2017 6:19 pm
TIAX wrote:
Sat Dec 09, 2017 1:46 pm
Why do the institutional total stock market funds have 100% QDI whereas the rest (admiral, investor, etc.) have 94%? Don't they follow the same index?
They follow the same index, but they are not share classes of the same fund; each fund computes its own QDI. Dividends can become non-qualified if the fund held the stock for less than 61 days, or if it lent the stock out to a short-seller; the two funds might have done this with different stocks. Also, 94% is not far from 100% since the IRS allows any fund with 95% or more QDI to report it as 100%.
The ETF shares may have something to do with this.

The S&P 500 Index Fund uses its ETF share class to avoid realizing capital gains. Shares distributed through the ETF redemption mechanism are those with a low cost basis, which are usually the oldest shares. Shares accepted through the ETF creation mechanism will be new shares. If the stocks pay a dividend within 60 days, the dividends on the new shares will be non-qualified.

ETF shares trade more actively than mutual funds, so more of the shares will be new, and more of the dividends will be nonqualified.

The Institutional Index Fund has no ETF shares. Most of the shares are held in tax-advantaged accounts, so it does not need to eliminate unrealized capital gains.

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Re: Vanguard year end distributions - updated estimates

Post by Nicolas » Tue Dec 12, 2017 6:03 pm

livesoft wrote:
Fri Dec 08, 2017 8:45 pm
The small-cap foreign fund VFSVX / VSS has even less qualified dividend income percentage than last year. Foreign mid/small caps are in VTIAX / VXUS, but not in VFWAX / VEU. So putting VSS / VFSVX in tax-advantaged might be worthwhile to some folks (like me!).
Agreed. My VSS is in taxable. I'm going to move it to Roth after the new year.
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Re: Vanguard year end distributions - updated estimates

Post by HongKonger » Tue Dec 12, 2017 6:12 pm

Really annoying they don't list them by ticker code. Like people remember the full name of their funds.

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Re: Vanguard year end distributions - updated estimates

Post by livesoft » Tue Dec 12, 2017 6:25 pm

HongKonger wrote:
Tue Dec 12, 2017 6:12 pm
Really annoying they don't list them by ticker code. Like people remember the full name of their funds.
You clicked on the wrong link. For instance, here is the link for ETFs: https://personal.vanguard.com/pdf/YEETF_122017.pdf
It is true that Vanguard does not go out of their way to make the link obvious.
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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Tue Dec 12, 2017 6:30 pm

talzara wrote:
Tue Dec 12, 2017 4:32 pm
grabiner wrote:
Sat Dec 09, 2017 6:19 pm
TIAX wrote:
Sat Dec 09, 2017 1:46 pm
Why do the institutional total stock market funds have 100% QDI whereas the rest (admiral, investor, etc.) have 94%? Don't they follow the same index?
They follow the same index, but they are not share classes of the same fund; each fund computes its own QDI. Dividends can become non-qualified if the fund held the stock for less than 61 days, or if it lent the stock out to a short-seller; the two funds might have done this with different stocks. Also, 94% is not far from 100% since the IRS allows any fund with 95% or more QDI to report it as 100%.
The ETF shares may have something to do with this.

The S&P 500 Index Fund uses its ETF share class to avoid realizing capital gains. Shares distributed through the ETF redemption mechanism are those with a low cost basis, which are usually the oldest shares. Shares accepted through the ETF creation mechanism will be new shares. If the stocks pay a dividend within 60 days, the dividends on the new shares will be non-qualified.

ETF shares trade more actively than mutual funds, so more of the shares will be new, and more of the dividends will be nonqualified.

The Institutional Index Fund has no ETF shares. Most of the shares are held in tax-advantaged accounts, so it does not need to eliminate unrealized capital gains.
That is not how the time window for qualified dividends works. The IRS says "You must [edit: or the fund, in this case] have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. "

Under this rule, the new shares will yield qualified dividends if held for a sufficiently-long period.

Your thesis would be validated if it were shown the new ETF shares were also retired.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Tue Dec 12, 2017 6:34 pm

triceratop wrote:
Sat Dec 09, 2017 4:55 am
Thesaints wrote:
Fri Dec 08, 2017 9:11 pm
triceratop wrote:
Fri Dec 08, 2017 8:55 pm
Probably not "the" reason. It more likely has to do with REITs.
But they pay dividends every year and for 2016 QDI ratio was 100%, IIRC
No that was 2015.
OK, same consideration applies to 2015 then. There were REITs in VTSAX in 2015 too.
The explanation that a QDI share over 95% can be reported as 100% seems a possible one.
That would also explain why institutional shares have 100%, while admiral only 94%: actual figure was just above 95%. institutional shares have the lowest ER, therefore the payout still has more than 95% of QDI, but slightly higher ER in the other classes are enough to drag that number just below 95%, hence the reported 94%.
Thanks to those who highlighted this exotic property of fund dividends, which I imagine also applies to ETF's

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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Tue Dec 12, 2017 6:37 pm

talzara wrote:
Tue Dec 12, 2017 4:32 pm
ETF shares trade more actively than mutual funds, so more of the shares will be new, and more of the dividends will be nonqualified.
Actually, ETF shares trade very little at all. If by trade we mean trading of the underlying securities, which is what is relevant for QDI purposes.

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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Tue Dec 12, 2017 6:44 pm

Thesaints wrote:
Tue Dec 12, 2017 6:34 pm
triceratop wrote:
Sat Dec 09, 2017 4:55 am
Thesaints wrote:
Fri Dec 08, 2017 9:11 pm
triceratop wrote:
Fri Dec 08, 2017 8:55 pm
Probably not "the" reason. It more likely has to do with REITs.
But they pay dividends every year and for 2016 QDI ratio was 100%, IIRC
No that was 2015.
OK, same consideration applies to 2015 then. There were REITs in VTSAX in 2015 too.
The explanation that a QDI share over 95% can be reported as 100% seems a possible one.
That would also explain why institutional shares have 100%, while admiral only 94%: actual figure was just above 95%. institutional shares have the lowest ER, therefore the payout still has more than 95% of QDI, but slightly higher ER in the other classes are enough to drag that number just below 95%, hence the reported 94%.
Thanks to those who highlighted this exotic property of fund dividends, which I imagine also applies to ETF's
Here's the reference to the US Code, for future reference: https://www.law.cornell.edu/uscode/text/26/854

You have the explanation for institutional vs Admiral precisely backwards. Funds can use expenses to offset non-qualified dividends. Therefore funds with higher ERs should be expected to have higher percentages of reported qualified dividend income.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Tue Dec 12, 2017 6:50 pm

triceratop wrote:
Tue Dec 12, 2017 6:44 pm
You have the explanation for institutional vs Admiral precisely backwards. Funds can use expenses to offset non-qualified dividends. Therefore funds with higher ERs should be expected to have higher percentages of reported qualified dividend income.
How do you explain this year's data ? Could it be that institutional shares have a lower turnover ratio and therefore got more holdings included in the 61-day rule ? Yet all turnover rate are reported at 4.1%...

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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Tue Dec 12, 2017 7:05 pm

Thesaints wrote:
Tue Dec 12, 2017 6:50 pm
triceratop wrote:
Tue Dec 12, 2017 6:44 pm
You have the explanation for institutional vs Admiral precisely backwards. Funds can use expenses to offset non-qualified dividends. Therefore funds with higher ERs should be expected to have higher percentages of reported qualified dividend income.
How do you explain this year's data ? Could it be that institutional shares have a lower turnover ratio and therefore got more holdings included in the 61-day rule ? Yet all turnover rate are reported at 4.1%...
It's not like it's a great achievement. Institutional index also expects to pay out 0.62% of NAV as capital gains distributions.

It's easy to imagine the games you can play with selling REITs one day and buying the next (or swapping REITs around distribution days to keep net exposure) to transfer non-qualified dividend income to capital gains. Of course, I'm not sure why one would want to.

That said, I don't have a great explanation myself. I just know it isn't because Institutional Index's ER is lower.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Tue Dec 12, 2017 7:11 pm

triceratop wrote:
Tue Dec 12, 2017 7:05 pm
It's not like it's a great achievement. Institutional index also expects to pay out 0.62% of NAV as capital gains distributions.
What about VTSAX ?
It's easy to imagine the games you can play with selling REITs one day and buying the next (or swapping REITs around distribution days to keep net exposure) to transfer non-qualified dividend income to capital gains. Of course, I'm not sure why one would want to.
Mmmh... but institutional, admiral, etc, are only share classes drawn from a single portfolio. They are not administered as separate pools of securities. Otherwise Investor to Admiral conversions would be taxable.

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Re: Vanguard year end distributions - updated estimates

Post by triceratop » Tue Dec 12, 2017 7:15 pm

Thesaints wrote:
Tue Dec 12, 2017 7:11 pm
triceratop wrote:
Tue Dec 12, 2017 7:05 pm
It's not like it's a great achievement. Institutional index also expects to pay out 0.62% of NAV as capital gains distributions.
What about VTSAX ?
It's easy to imagine the games you can play with selling REITs one day and buying the next (or swapping REITs around distribution days to keep net exposure) to transfer non-qualified dividend income to capital gains. Of course, I'm not sure why one would want to.
Mmmh... but institutional, admiral, etc, are only share classes drawn from a single portfolio. They are not administered as separate pools of securities. Otherwise Investor to Admiral conversions would be taxable.
Apologies. I was speaking for Institutional Index fund (VTINX) which tracks the S&P500 index not the total market. I was confused because the current version of the page shows no difference in %QDI across all share classes of the total market fund.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Tue Dec 12, 2017 7:17 pm

I see. Thank you for teaching me those details, anyway.

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Re: Vanguard year end distributions - updated estimates

Post by talzara » Tue Dec 12, 2017 8:29 pm

triceratop wrote:
Tue Dec 12, 2017 6:30 pm
That is not how the time window for qualified dividends works. The IRS says "You must [edit: or the fund, in this case] have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. "

Under this rule, the new shares will yield qualified dividends if held for a sufficiently-long period.

Your thesis would be validated if it were shown the new ETF shares were also retired.
You're right, Vanguard would also have to get rid of the shares within 60 days. I only got it half-correct. It works if I change the other half to:
When Vanguard gets new ETF shares, which are composed of old low-basis stocks in the underlying index constituents, then the dividends will be non-qualified because Vanguard gives away the shares within 60 days.
This can happen because there are multiple S&P 500 ETFs. Just like the Authorized Participants can arbitrage between the buy and sell side of one ETF, they can also arbitrage between the buy and sell side of two different ETFs that track the same index.

If an imbalance develops between SPDR and VOO, the AP can redeem units from State Street and hand it over to Vanguard. This is faster than selling the shares, buying new ones, and then giving the new shares to Vanguard. In arbitrage, speed counts.

State Street is playing the same game as Vanguard, so it gives away low-basis shares. If they're lower-basis than the shares that Vanguard already has, then Vanguard will want to give them away first. It turns into a game of hot potato. Someone ends up holding these shares overnight on the ex-dividend date. Those dividends are non-qualified if the shares are given away within 60 days.

However, sometimes there aren't any cross-arbitrage opportunities. The APs will redeem ETF shares and sell the index constituent stocks themselves. That's when these low-basis shares finally exit the ETF system. That's why 94% of the dividends are qualified, despite all the ETF activity. The effect is only strong enough to account for a few percent, maybe only 1%, of the dividends.

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Re: Vanguard year end distributions - updated estimates

Post by talzara » Tue Dec 12, 2017 8:37 pm

Thesaints wrote:
Tue Dec 12, 2017 6:37 pm
talzara wrote:
Tue Dec 12, 2017 4:32 pm
ETF shares trade more actively than mutual funds, so more of the shares will be new, and more of the dividends will be nonqualified.
Actually, ETF shares trade very little at all. If by trade we mean trading of the underlying securities, which is what is relevant for QDI purposes.
I mean it both ways. The ETF shares themselves trade more than the equivalent Vanguard mutual fund. The stocks inside the ETF also turn over more frequently than the stocks inside the mutual fund.

In an ETF, imbalances between buy and sell orders are arbitraged out in microseconds. Whenever the spread widens, the authorized participants will create and redeem ETF shares by trading the index constituents.

In a mutual fund, imbalances between buy and sell orders are averaged out over the entire trading day. Vanguard can ignore the instantaneous imbalances. It doesn't have to act in microseconds to close a price gap, because the price gap is always zero. All the trades settle at the closing price no matter when they're placed.

If the Vanguard S&P 500 Index Fund has $50 million in buy orders and $45 million in sell orders, then Vanguard only has to buy $5 million of index components for that day.

If the same thing happens for an ETF, then the APs still have to buy $5 million of index components to create the ETF shares. However, they also have to create and redeem enough ETF shares to arbitrage out all the intraday imbalances that Vanguard gets to ignore.

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Re: Vanguard year end distributions - updated estimates

Post by Doc » Wed Dec 13, 2017 9:09 am

talzara wrote:
Tue Dec 12, 2017 8:37 pm
The ETF shares themselves trade more than the equivalent Vanguard mutual fund. The stocks inside the ETF also turn over more frequently than the stocks inside the mutual fund.
I was under the believe that there is a single pool for all share classes and at least at Vanguard ETFS were also in the same pool for most of Vanguard's issues.
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Re: Vanguard year end distributions - updated estimates

Post by talzara » Wed Dec 13, 2017 11:12 am

Doc wrote:
Wed Dec 13, 2017 9:09 am
talzara wrote:
Tue Dec 12, 2017 8:37 pm
The ETF shares themselves trade more than the equivalent Vanguard mutual fund. The stocks inside the ETF also turn over more frequently than the stocks inside the mutual fund.
I was under the believe that there is a single pool for all share classes and at least at Vanguard ETFS were also in the same pool for most of Vanguard's issues.
We were discussing the S&P 500 Fund and the Institutional Index Fund.

The S&P 500 Fund has ETF shares, whose underlying securities get conmingled with all the other share classes. Whatever happens in the ETF shares also affects the Investor and Admiral shares.

However, the S&P 500 Fund does not have an Institutional class. All of the Institutional shares are in a separate mutual fund, the Institutional Index Fund. That fund does not have ETF shares, so it is not subject to the effects of the ETF mechanism.

To make it even more confusing, the Institutional Select shares are in the S&P 500 Fund, not the Institutional Index Fund. The Institutional Select shares are conmingled with the ETF shares, but the Institutional shares aren't.

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Re: Vanguard year end distributions - updated estimates

Post by Doc » Wed Dec 13, 2017 12:43 pm

talzara wrote:
Wed Dec 13, 2017 11:12 am
We were discussing the S&P 500 Fund and the Institutional Index Fund.
:oops: I forgot. Senior moment.
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Re: Vanguard year end distributions - updated estimates

Post by randomizer » Wed Dec 13, 2017 3:39 pm

Artsdoctor wrote:
Fri Dec 08, 2017 8:05 pm
Thanks for the link. Yes, the estimates are usually slightly lower than what's actually paid out. Interesting to me that the Total Stock Market funds have only 94% qualified dividends, whereas Large Cap and S&P 500 both have 100%. Also, we tend to think of the FTSE ex-US fund as being a perfect TLH equivalent fund for the Total International fund but dividends for that fund are 72% QDI whereas the latter is only 66%. Not a deal-breaker, but it's a good example of how the classic Total Stock/Total International combination would be less efficient than the S&P 500/FTSE ex-US combination. And the Total Stock return was less than the larger stock index funds to boot.
Funnily, my last TLH opportunity had me switching to S&P 500 + FTSE ex-US. I feel like a lucky market timer.
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Re: Vanguard year end distributions - updated estimates

Post by Thesaints » Wed Dec 13, 2017 4:57 pm

talzara wrote:
Tue Dec 12, 2017 8:37 pm
Thesaints wrote:
Tue Dec 12, 2017 6:37 pm
talzara wrote:
Tue Dec 12, 2017 4:32 pm
ETF shares trade more actively than mutual funds, so more of the shares will be new, and more of the dividends will be nonqualified.
Actually, ETF shares trade very little at all. If by trade we mean trading of the underlying securities, which is what is relevant for QDI purposes.
I mean it both ways. The ETF shares themselves trade more than the equivalent Vanguard mutual fund. The stocks inside the ETF also turn over more frequently than the stocks inside the mutual fund.

In an ETF, imbalances between buy and sell orders are arbitraged out in microseconds. Whenever the spread widens, the authorized participants will create and redeem ETF shares by trading the index constituents.

In a mutual fund, imbalances between buy and sell orders are averaged out over the entire trading day. Vanguard can ignore the instantaneous imbalances. It doesn't have to act in microseconds to close a price gap, because the price gap is always zero. All the trades settle at the closing price no matter when they're placed.

If the Vanguard S&P 500 Index Fund has $50 million in buy orders and $45 million in sell orders, then Vanguard only has to buy $5 million of index components for that day.

If the same thing happens for an ETF, then the APs still have to buy $5 million of index components to create the ETF shares. However, they also have to create and redeem enough ETF shares to arbitrage out all the intraday imbalances that Vanguard gets to ignore.
Yes, but you can check the creation/redemption volume and it is minimal compared to the outstanding shares.
ETF trading volume takes care of the spread well before new shares have to be created/redeemed.

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Re: Vanguard year end distributions - updated estimates

Post by talzara » Fri Dec 15, 2017 12:18 pm

Thesaints wrote:
Wed Dec 13, 2017 4:57 pm
Yes, but you can check the creation/redemption volume and it is minimal compared to the outstanding shares.
ETF trading volume takes care of the spread well before new shares have to be created/redeemed.
What's the creation/redemption volume for VOO? How many Vanguard S&P 500 ETF shares are created each year?

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Re: Vanguard year end distributions - updated estimates

Post by Doc » Fri Dec 15, 2017 5:29 pm

talzara wrote:
Fri Dec 15, 2017 12:18 pm
Thesaints wrote:
Wed Dec 13, 2017 4:57 pm
Yes, but you can check the creation/redemption volume and it is minimal compared to the outstanding shares.
ETF trading volume takes care of the spread well before new shares have to be created/redeemed.
What's the creation/redemption volume for VOO? How many Vanguard S&P 500 ETF shares are created each year?
There are table in annual and semi annual reports from which you can get that kind of information.

Also look at the ownership tab on Morningstar. For example: http://investors.morningstar.com/owners ... ture=en_US
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