Exchange-traded fund provider Invesco PowerShares Capital Management has announced that it expects to pay zero capital gains distributions for 119 of its 120 US equity and fixed-income exc
Exchange-traded fund provider Invesco PowerShares Capital Management has announced that it expects to pay zero capital gains distributions for 119 of its 120 US equity and fixed-income exchange-traded funds for 2008.
To date, Invesco PowerShares has never made a capital gain distribution to shareholders of its equity or fixed-income based ETF portfolios. Only one PowerShares ETF, PowerShares S&P 500 BuyWrite Portfolio, is expected to realise a small capital gains distribution, due largely in part to the underlying index methodology which writes covered calls on the S&P 500 Index.
‘We are very pleased to announce zero capital gains payouts for the year on all but one of our ETFs,’ says Invesco PowerShares president and chief executive Bruce Bond. ‘At a time when the financial markets and many funds have lost significant value over the past year, the last thing investors want is to be hit with a tax bill.
‘Taxes may be the most critical and overlooked factor in wealth creation over time, and the ETF continues to prove its viability as a tax-efficient and transparent investment vehicle.’
According to a recent Lipper study, last year mutual funds paid out nearly USD393bn, or 3 per cent of their combined net asset value, in capital gains to their shareholders, but this is expected to increase in 2008 as redemptions have forced many fund managers to liquidate positions, creating capital gains.
The PowerShares S&P 500 BuyWrite Portfolio is unique in the fact that it accounts for gains or losses on its investments for federal income tax purposes on a daily mark-to-market basis.
Generally, the mark-to-market gains or losses from the stock portfolio positions will be compared with the mark-to-market gains or losses from the call options positions on a daily basis. To the extent there is more gain from the call options than from the stock positions, it will generally be taxed as 60 per cent long-term capital gain and 40 per cent short-term capital gain, which is the case this year.
As of December 1, the fund had outperformed the S&P 500 Index this year by more than 9 per cent. Between its launch on December 20, 2007 and September 30 this year, the fund declined by 9.05 per cent, compared with 19.27 per cent for the S&P 500.
‘We believe the success of the PowerShares S&P 500 BuyWrite Portfolio is a testament to the effectiveness of the underlying index methodology,’ Bond says. ‘The premiums shareholders have collected on the covered call options over the past year show that the fund is doing exactly what it has been designed to do.’
Invesco PowerShares Capital Management manages more than 100 US and international exchange-traded funds and had assets under management of USD12.1bn at the end of September.