More exchange-traded funds companies are announcing year-end forecasts for distributions, with inverse funds provider Rydex providing the latest glimpse at what investors should expect in terms of tax bills for 2008.
Seven Rydex inverse funds will make distributions on Dec. 19 ranging from 8% to 73%, the smallest being the Inverse 2X Russell 2000 Index ETF (NYSE Arca: RRZ) and the largest gains on the Inverse 2X S&P Select Sector Energy ETF (NYSE Arca: REC).
Meanwhile, Invesco PowerShares Capital Management is estimating annual capital gains distribution for one of its more specialty ETFs, the PowerShares S&P 500 BuyWrite Portfolio (NYSE Arca: PBP). The firm doesn't expect the fund's distribution to be large. But since it's a covered-call-themed ETF—writing options contracts on the S&P 500 Index to provide options premiums to investors—it should wind up with an annual capital gains distribution of 5 cents per share, or 0.3% of net asset value.
None of the other roughly 120 PowerShares ETFs is expected to record 2008 distributions.
With PBP, mark-to-market gains or losses from the stock portfolio positions are compared with the mark-to-market gains or losses from the call options positions on a daily basis. If there is more gain from the call options than from the stock positions, they are generally taxed as 60% long-term capital gain and 40% short-term capital gain, which is the case this year. But with PBP beating the S&P 500's performance by more than 9% so far this year, through Dec. 1, PBP is executing on its strategy of decreasing the volatility of the S&P 500 universe.
ProShares, another inverse funds provider, says it won't release estimates for distributions in 2008 in advance. The firm explained that while the AMEX exchange required pre-announcements, the NYSE—where it now trades—hasn't set such preconditions.