ProShares Announces Zero “0″ Capital Gains On ETF Distributions
“Bethesda, Maryland-based ProShares announced on Tuesday that it expects to pay zero 2009 year-end capital gains distributions on all 77 of its leveraged and inverse equity and fixed income exchange-traded funds, putting at ease any investors who had been questioning the tax efficiency of leveraged funds,” Michael Johnston Reports From ETF Database.
“While we manage ProShares to minimize capital gain distributions, a myriad of factors may impact the level of capital gains that tax regulations require to be distributed,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC, ProShares’ investment advisor. “In contrast to last year when the funds were faced with a confluence of highly unusual circumstances with respect to such factors, this year presented circumstances that we view as more typical.”
“In 2008, several leveraged ETFs made significant year-end capital gains distributions, most notably the Rydex 2x S&P Select Sector Energy (REC) which paid out more than 80% of its NAV. This came as a very unpleasant surprise to many investors who embraced ETFs in part because of their enhanced tax efficiency relative to traditional actively-managed mutual funds,” Johnston Reports.
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“Under most circumstances, leveraged in inverse ETFs do exhibit the same efficient tax features of unleveraged, long funds. But because leveraged and inverse ETFs use swap agreements to achieve their results, there exists the potential for big capital gains payments at the end of the year (John Gabriel does a good job of explaining exactly why this can occur here, as does Matt Hougan here). While the few large outliers in 2008 received the bulk of the coverage in the financial press, capital gains distributions for most leveraged ETFs were minimal (or zero) for the year,” Johnston Reports.
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