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Strong Commodities Performance & 2021 Tax Implications



The global reopening and supportive supply/demand dynamics have boosted commodities performance to some of its strongest levels in more than 20 years, +32% YTD (as of 11/30/21).  While this has clearly benefitted investors’ portfolios, it has also created a unique tax situation.

Many of today’s commodities-based ETFs and mutual funds (like the ones we utilize in our strategies) have organized themselves in a way that no longer requires bothersome K-1 tax reporting. Instead, the funds pay out gains via a simple ordinary income distribution, which typically occurs after a fund’s fiscal year end.

Under normal circumstances, where commodities returns are modest, this distribution will likely have a minimal impact on a client’s annual tax situation. However, during years of outsized positive performance, the impact can be much more meaningful. This speaks directly to iCM’s rationale for avoiding ownership of broad-basket commodities funds within our “Tax Sensitive” strategies.

The prior year-and-a-half has been one of those outsized periods of performance, with commodities rallying meaningfully from their pre-COVID lows in Q1 of 2020. This has resulted in the following distributions for the funds utilized within iCM’s strategies:

 

Comm Dist

 

Additionally, it should be noted that the ex-dividend and payable dates for PDBC’s distributions fall on different days. As a result, clients may notice a performance discrepancy for PBDC when viewing real-time performance information between the ex-dividend and payable dates. This will naturally correct itself when the dividend payments are reflected.

If you have any questions, please feel free to reach out to a member of iCM’s Advisor Services team.

The content in this post should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Important Disclosures

Integrated Capital Management, Inc. is an SEC Registered Investment Advisor. Registration does not imply any certain level of skill or training. Monthly “Market Flash” is intended solely to report on various investment views held by Integrated Capital Management. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable, but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security.

Past performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

Strategy performance results are net of fund expenses, gross of advisory fees and other expenses that would be incurred in the management of client accounts, such as commissions, transaction fees, and/or custodial charges, and reflect the reinvestment of dividends and capital gains. The client’s return will be reduced by the advisory fees Integrated Capital Management, Inc. charges for the management of an account. Individual account performance and investment management fees incurred by clients may vary as fees for smaller accounts are higher on a percentage basis than for larger accounts. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. For additional information regarding advisory fees, please review Integrated Capital Management, Inc.'s Form ADV Part 2A.

TICE Blended Index comprised of 32% S&P 500/8% MSCI EAFE/38% Barclays Aggregate Bond/20% Barclays Municipal Bond/2% Cash

For 1-on-1 Use with Clients Only. Not to be Distributed to Third Parties.