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:
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.
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