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CAB: Claymore Tax-Advantaged Canadian Bond ETF

5541 Views 5 Replies 5 Participants Last post by  leslie
The ETF is designed to track the DLUX Capped Bond Index, a high-quality subset of the DEX Universe Bond Index, and to make distributions at least quarterly in the form of tax-advantaged capital gains.

This will be accomplished by investing the ETF in a portfolio of Canadian equity securities. The equities will be sold via a forward agreement to a counter-party, in return for a purchase price that provides exposure to the performance of the DLUX Capped Bond Index. As a result of these transactions, the ETF distributions are expected to be treated as capital gains. -Morningstar
'expected' to be treated as capital gains... As long as that happens then I see it as a creative way at getting exposure to a high quality bond index with more tax-efficient distributions.
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This is not really 'creative'. The same structure has been used in closed-end funds for at least 5 years

Yes, you have counter-party risk, but after last year I have noticed that managers of these funds are disclosing their counter-parties, and making sure they are really solid. Take care that you are not mislead by some subsidiary of (say) TD with a name like 'T-D Assets'. This subsidiary may not have any assets in it.

Your security for the swap of portfolios is the value of the Cdn portfolio that is created with you investors' cash and retained full ownership. If you get worried compare the value of the two portfolios.

Also check the management fees. With the closed-ended fund these are really high because you are paying for the management of TWO fund (if the derivative is actually backed by a fund.
The change in value of the underlying derivative creates an accrued gain. If that is paid out before being actually 'realized' by a sale, then it would be considered ROC for tax purposes. Resulting in no net reduction in value of the holding. (Div net of Gains).

Distributions may be made without either realized or accrued gains. In that case, too, the distribution would be ROC. Resulting in net reduction in value of holdings .

The distributions from these types of funds may be pre-set (regardless of accrued or even actual gains/loss) or may vary with the earned/accrued gains/losses. Most are the former because retail investors are too lazy to appreciate the difference.
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