As far as I know, nearly all US domiciled ETF get US L2TW taken from their distributions. There are certain exceptions like QII (Qualified Interest Income) discussed in this Bogleheads thread. They also link a iShares document that details for every fund how many percent were exempt for each distribution. From their wiki I gather, that the second exception are distributions from short-term capital gains.
But do you want to see a magic trick? I found that the DBMF ETF has spawned a mutual fund twin in Luxembourg. That means no L2TW and probably no Swiss taxes (maybe on collateral bond interest).
Sadly, if you are not already somwhat rich you can only buy their C-class shares with 1.60% management fees. Their I-class shares need a minimum investment of 1â000â000 USD. Edit: You can also buy the much better R-class shares (see below).
Just to see if it works at all, I placed an order on IBKR. Seemed to go through, as in the money is gone. We will know in a few days what I will get.
The somewhat better option considering the rather high ratio of distributions would be selling the day before and rebuying on the ex-dividend date. In the last few years DBMF and KMLM have only had a single distribution or less per year.
Some calculations with (short) historical data from Yahoo Finance give somewhat acceptable costs around 0.10% for DBMF and some huge gain at KMLM.
Calculation Table
ETF
Previous Day (Pre)
Ex-Date (Ex)
Minimum Volume
Close
Open
Average Pre
Average Ex
Distribution
Result Close- Open
Result Average
DBMF
2023-12-26
2023-12-27
241800
26.55
25.87
26.5725
25.835
0.75
-0.26%
-0.05%
DBMF
2022-12-27
2022-12-28
370000
31.19
29.07
31.3075
29.09
2.247
-0.41%
-0.09%
DBMF
2021-12-29
2021-12-30
30300
28.25
25.14
28.2975
25.6775
2.677
1.53%
-0.20%
DBMF
2020-12-28
2020-12-29
100
25.41
25.41
25.41
25.41
0.202
-0.79%
-0.79%
KMLM
2023
none
KMLM
2022-12-27
2022-12-28
115800
34.4
30.88
34.4025
30.6975
2.481
3.02%
3.56%
KMLM
2021-12-28
2021-12-29
300
28.78
26.87
28.78
26.88
1.838
0.25%
0.22%
Calculation Information
The âaverageâ price has been calculated from the average of Open, High, Low, Close. It should represent a price you could get on that day.
Both results are calculated as follows:
result = \frac{(price_{pre} - price_{ex} - distribution)}{price_{pre.average}}
They are the percentage change for doing this transaction instead of receiving the distributions (before withholding tax).
I donât know what the Swiss taxman will say about it though.
I heard that there is besaically no worthy european managed futures fund and 1.6% TER is insane and does not make it worth imo.
I also recently looked at wirtholding taxes and apparently the US does not withhold longterm cap gains distributions, which KMLMâs distributions are. Cant cite it atm though. On ictax tgere is also nothing that says tax is withheld.
But I will this year sell almost all before ex-day and just keep a few share, then re-buy (or buy another fund like CTA) and will see what happens. Should be no problem if I do it once.
I saw that, but those should be relatively miniscule, if any at all. Last year for example there wasnt any distribution at all. The bulk will still come at year end, due to the nature of how futures work, as those cash settle then.
Same fund, but the âRâ share class LU2572481948. I first thought âRâ is for retirement funds and did not consider it (probably because of US mutual funds). It is not.
I placed an order for 257248194 IMGP - DBI MANAGED FUTURES âRâ (USD) ACC on IBKR for 200 USD. It accepted. Maybe because IBKR uses an omnibus account? Results should be available by the end of this week.
The âRâ class has only a maximum of 0.80% management fees. Redemption fees are 1.00% for all share classes.
I mean KMLM is an outlier here, with their decision to do everything but equity. As mentioned iMGP DBi Managed Futures has an US ETF that existed since 2019-05-07. We can compare the adjusted returns with VT on Tradingview:
It was only marginally affected by the Corona shock of 2020 and also had the good returns of other managed futures in 2022. This is to be expected since it aims to index(/copy) the bigger managed futures funds.
Bonus: The ETF can also be looked up on Ictax. It can be found together with the UCITS mutual funds by searching for âimgp dbi managed futuresâ. It is called âShs iMGP DBi Managed Futures Strategy Fundâ from "Litman Gregory Funds Trust, Orinda, USA " and has the ISIN US53700T8273.
It had a dismal Swiss tax treat treatment in 2022 with more than 10% of its value as taxable distributions. Might be because nobody complained and they didnât classify their distributions like KMLM.
Regardless, the actual interest inside DBMF can be learned from their (iMGP = Litman Gregory Funds Trust) annual reports. They only have the last one available, but luckily the SEC will keep track of them all.
The one for 2022 states total assets of USD 952,027,425 and an interest of USD 559,622 (& 0 dividends). Which is a bit low, but I donât know why.
Ok, I reallocated a decent portion of my portfolio to the R-shares (= IMGP - DBI MANAGED FUTURES âRâ (USD) ACC)
Maybe I will increase it more later. I can imagine to hold up to 30% in managed futures. But I would prefer to not have all of it in one fund. Although they plus minus do the same thing, it still involves a lot of active management. To keep my total allocation to stocks, I also thought about adding some stock index futures on top. But I have not completed my thoughts about this part.
I have also bought and sold low amounts to test the fees (everything in USD):
Share Class
Transaction
Valuation
Settlement
Price on Chart
Price in Statement
Quantity
Fees
Calculated Total
Account Statement
C
2024-02-29
2024-03-01
2024-03-04
150.84
150.837104
1.326
0.00
200.009999904
-200.01
C
2024-03-08
2024-03-11
2024-03-12
150.22
150.218703
-1.326
0.00
-199.190000178
199.19
Difference:
0.819999726
-0.82
R
2024-03-07
2024-03-08
2024-03-11
148.68
148.67658
1.345
5.42
205.390000100
-205.39
R
2024-03-12
2024-03-13
2024-03-14
148.24
148.23792
-1.345
5.42
-193.960002400
193.97
Difference:
11.4199977
-11.42
There didnât seem to be an exit charge for the âCâ-class or âRâ-class shares (despite the maximum stated to be 1%). Fees for the âRâ-class shares where transparently declared by IBKR before buying. They seem to be the same for buying and selling, and also not dependent on the transaction size (e.g., my allocation transaction).
To what extent do you think are these âpassive premiaâ vs. alpha / luck returns? Fundamentally, I believe there was a premia in underwriting futures. The question is trully - I donât realy trust any of these funds yet as I never know whether I only had a look at a lucky period or not.
KLML seems to be a faily passive / rule book based strategy. Whether that rule book worked out in the future or not is a different story but at least it should be somewhat consistent and chances are there that what had worked in the past, might still work in the future. But on the DBI one - this is purelly active and we just donât know whether their lucky hand was still there? Or how do you see this?
So long story short - how do you propose to mitigate the Manger Selection risk here?
Further up the thread @johndoe1posted research about momentum premium in futures for a timeframe starting in 1880. There seems to be good return that is also anti-correlated to the stock market.
A problem was, and is, that expense ratios are very high. That doesnât mean, that it didnât return anything. Just that a big share of the return was received by exchanges, brokers, and managers.
DBi Managed Futures tries to replicate the strategies of the biggest managed futures funds by estimating their holdings statistically. That is pretty similar to having a market weighted stock index fund. If capital believes one company is better than another, they allocate their money to a share. If they guessed wrong, they get less than those who guessed right. That should still somewhat hold with funds, so an indexing approach makes sense. You could also do so manually and buy a bit of each large fund. But it is more expensive because those funds charge more.
They do add that they do this replication actively, so the manager has a lot of discretion, so the risk rises. This could of course also be good decisions, but it just introduces a single point of failure that we tried to avoid by replicating the industry. This is why I wouldnât want to have high percentages in the same fund.
Contrary to established knowledge, I found a competitive option. This was time intensive, and for now, I have not found any other good options. But there might be. I donât need to diversify yet, as it is still a minor position in my portfolio. A total loss will only set me back for some years instead of destroy me (and I hold it unlikely). Lesser underperformance wonât hurt as much. It can be spotted and corrected. I think the available products will improve in the next few years. I totally would buy KMLM, if the tax drag was not so catastrophic.
Thanks a lot for your post, I highly appreciate your insight here.
Bit in the same situation that I would probably immediately buy into KMLM - if there was no tax drag. On the DBi; i am still a bit insecure. Do they know what data they use to guess the fundsâ positions?
Reason why I ask was that a few years back, there were cheap ETF that had a look at hedge funds regular reporting and based on this tried to re-produce the positions they held. This lead to a situation where people bought too late, sold too late, ⊠and eventually some arbitrators made fun out of it and both started to hide away positions or to front-run the ETF.
Are Managed Future stats available lets say on a daily basis or so? Or is there as well a certain time-window that introduces such risk?
You can find their prospectus on the fundâs page. From the prospectus:
The Dynamic Beta Engine analyzes recent (i.e., trailing 60-day) performance of Managed Futures Alternative Funds in order to identify a portfolio of liquid financial instruments that closely reflects the estimated current asset allocation of the selected pool of Managed Futures Alternative Funds, with the goal of simulating the performance, but not the underlying positions, of those funds.
I think there could be problems if many funds start day trading (not trend, high fees), or mainly invest in exotic instruments like cheese futures (bad spreads, low volume). Neither seems to be a strategy with positive expected returns. But of course, markets can change, like the fact that stocks werenât always this superior to bonds.
About front running. Isnât that a potential problem for all indexing approaches? Shouldnât be as much a problem, since they are a small part of the market for now, and they donât announce what exactly they will do at what time.
Remember where KMLM is domiciled. Though it all is capital gain and interest, which should not be subject to withholding tax, Iâm just not confident IBKR and KMLM can do this correctly. A problem I donât have with a Luxembourg domiciled fund. But maybe someone wants to do an empirical experiment?
Had a closer look at KMLM. My conclusion is that distribution should not be taxeable in Switzerland. There would be withholding tax in the US (15%). The question is whether we can claim these 15% back, given there was no Swiss Income Tax on these distributions.
Assuming 10% Distributions and 15% Withholding tax, there is a tax drag of 1.5%. This next to ETF Cost of roughly 1.05%⊠bit expensive. Still I am tempted to just give it a go and see if I can claim the US witholding tax backâŠ
If the US keeps 15%, who will give you anything back? Certainly not Switzerland. They will credit foreign withholding taxes to the taxes you have to pay in Switzerland. But since you donât pay Swiss taxes on that, there is also nothing to offset tax credit against.
I looked it up and technically long term cap gains distributions should be excempt from withholding taxes.
Btw current ter is 0.9%, got a bit cheaper over time
But what you can do in any case, if the US keeps withholding taxes: just sell before ex-date and re-buy after. As you are not circumventing swiss taxes, this should not be an issue for the swiss tax office.
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