Thu 14 Dec 2006
What happened to my mutual fund holding OAKIX? It’s down 13% today!
No need to panic of course… today was the mutual fund distribution for the year for the Oakmark International Fund.
For those who don’t understand this practice… mutual funds may have transactions during the year are taxable events — like selling one of its stock for a profit. Since you’re the owner of the fund, you are the one responsible for paying that on your income taxes. To make it easy on you, mutual funds pay out a dividend at the end of the year to cover those taxes… in this case, a 13% payout by OAKIX.
The 13% payout is quite rich, but the international stocks that OAKIX focuses on have returned a heck of a year — up almost 30%.
December 15th, 2006 at 8:42 am
This 13% payout precipitating such a sudden downturn seems rather odd – I cannot recall having seen such a significant 1-to-1 transfer of the payout and the mutual fund price. Was Dec 13 or 14 the cutoff date for shareholders to receive the payout?
December 15th, 2006 at 8:46 am
Is this a newer practice that’s a response to the fairly recent relaxation of the tax on dividends? In other words, are high-quality mutual funds with savvy managers adjusting their model to provide better tax advantages to their shareholders by allowing a way to reduce the distributed capital gains tax? If so, bravo! And….is now as good a time as any to buy OAKIX?
December 15th, 2006 at 10:02 am
No, this is and has been standard practice for years… at least with all the mutual funds that I have owned…
The ex-div date for mutual funds is the same date that the dividend is payed out, so if you bought on Wednesday, you’d qualify for the dividend. Unfortunately, you’d also qualify for the capital gains distributions that go with it…
Now is a good time to buy OAKIX so you can avoid that year-end capital gains distribution… otherwise, I’d recommend EFA if you want the same flavor of investment in an ETF.
December 27th, 2006 at 3:28 pm
Actually, the iShares EFV fund would be closer to the OAKIX style — international/global value… rather than the EFA fund, which tracks the entire EAFE index.