Sunday, December 31, 2006

TFS Capital Distribution

So far I am very happy with my investment in TFS Capital's Market Neutral Fund. The fund distribution for 2006 has just been announced:

Short term capital gains: 0.0895
Long term capital gains: 0.1272

After my discussion on this blog with one of the portfolio managers I had been a bit concerned that the distribution might impose a big tax burden, which is one of the downsides of actively managed open-ended mutual funds held in taxable accounts. Recent investors have to pay taxes on investment gains from the past which they haven't benefited from income wise. But this distribution is not bad. It is only a 1.6% yield and the short-term long-term CGT composition is close to the 40/60 mix of futures trading. And my gain so far in just over a month of holding the fund is 5.3% (pre-tax)!

4 comments:

Anonymous said...

When mutual funds have net purchases during the course of a year, the distribution amount is diluted. In other words, the taxable gains generated on a lower asset base are distributed across a larger pool of investors that are there at year-end. This was the case with the TFS Market Neutral Fund this year - it started the year less than $10 MM but is currently around $55 MM. This growth helped keep the distribution amount relatively small.

The flip side is when mutual funds have net redemptions. The distribution amount is concentrated and given to the remaining investors. Not much fun for those left holding the bag.

The TFS Market Neutral Fund has had a portfolio turnover of over 300%. Because of that, it will not be very tax-efficient. The prospectus has all of the goodies on this and should be read thoroughly before investing...

Rich Gates

mOOm said...

Thanks for the interesting explanation. Hopefully, the fund will be successful and continue to grow in the next few years.

StealthBucks said...

I prefer OLA. As you know, a bit of a different animal but so far (based on my buy in price, a better deal. If the fund has a 300% turnover rate, I'd question owning it going forward, that's a lot of trading to gain alpha with...

mOOm said...

I may add some of these closed end funds after a market correction if they are then trading at a discount. I don't see anything per se bad about a high turnover rate when a fund is specifically a trading based fund - a hedge fund like mutual fund. This year I traded $8 million of stocks so my turnover rate was upwards of 2000%! Diversification across strategies is a good idea.