PowerShares joins other ETF sponsors with cap gains focused on income-focused funds.
Invesco Powershares, the fund provider best known for its Nasdaq-100 ETF (NasdaqGM: QQQ), said it expects to pay capital gains on three of its 123 ETFs by year-end, all of which are income-generating strategies.
The funds, which include one of the 13 ETFs PowerShares is shuttering in February due to lack of assets, will see distributions of less than 1 percent of net asset value per share.
The PowerShares Active Low Duration Fund (NYSEArca: PLK), which is estimated to pay cap gains distributions of anywhere from $0.045 to $0.075, is expected to last trade on Feb. 26 and be completely liquidated by March 7. PLK has under $8 million in assets.
The concentration of cap-gains distributions on income-related strategies is consistent with payouts other ETF sponsors have reported so far. Such payouts are a reflection of a post-crisis environment that has seen investors pile into fixed income in a one-way flow of traffic that has limited many managers’ ability to offset cap gains at the portfolio level through sales of available low-cost-basis securities.
The three PowerShares ETFs paying cap-gains distributions this year are:
- PowerShares S&P 500 BuyWrite Portfolio (NYSEArca: PBP), estimates distribution of $0.13 to $0.16.
- PowerShares 1-30 Laddered Treasury Portfolio (NYSEArca: PLW), $0.001 to $0.003.
- PowerShares Active Low Duration Fund (NYSEArca: PLK), $0.045 to $0.075
Investors have to pay federal taxes on capital gains distributions—something that’s in sharper focus these days given that an expected overhaul of the U.S. tax code next year could mean significantly higher cap gains taxes starting in 2013.
ETFs are often heralded for their tax efficiency, but that doesn’t mean they are exempt from paying capital gains distributions when profits from the sale of securities have to be recorded at the fund level.
Other ETF providers who have already reported cap gains have again seen most, if not all, distributions focused on the fixed-income space, pointing to what has been a huge rally in bond funds since the market crash of 2008. Those include Guggenheim, iShares and Vanguard.