Need help understanding this chart ...

[flipperxxx]

  So, the first fund pic is of CBLDX for the past few months, showing its distributions at the bottom, those distributions being reinvested at the post-dist price such that you wind up with more shares even though the total amount invested in the fund remains the same.  the chart is adjusted for this and everything continues along smoothly. 

  now look at the second chart -- fund LMNOP, true name redacted --and its distributions and the effect they have on the chart: a jump in price equal to the amount of the distribution, month after month.  now, why would that be?

  early last month, curiosity got the better of me and i plunked a tiny amount into the fund.  for the sake of discussion and simplicity, let's say it was $50k.  all month long, i watched the price hang at, oh, let's call it 9.63.  did not move for weeks on end.  9.63, day after day, until 2/29/24, when it shuttled me $257 in its monthly distribution, which got reinvested at good ol' 9.63, leaving me with a new (theoretical) share balance of 5218 and a market value of, yup, 50,257, an increase of around .5%.  that's a hill of beans in today's go-go world.  but i wonder if i would have gotten the same $257 had i waited to invest that (theoretical) 50k until, say, 2/26.  then that would be a return of .5% in just a few days, which ain't too shabby.  and that gets me to thinking maybe i ought to put a cool million into it next time, ha ha, ha.

  otoh, i'm sure i'm missing something very obvious to my betters here and this whole long post is nothing but an exercise in embarrassment, but, hey, nothing ventured, nothing, etc etc ad nauseam ad infinitum.

[racqueteer]

Off the top of my head, I would think that one holds the distributed amount kind of in escrow and distributes once a month to buy shares each month; where the other is constantly being distributed in real time, affecting price instead?

[yogibearbull]

Difference is that fund1 flows distributions through the NAV, so it drops on ex-div date. There are dividend capture strategies that are generally ineffective.

Fund2 uses the accrual method where the interest is declared daily but credited at the month-end. The principal doesn't drop on the ex-div date, and rises instead. But here is the rub - if you trade the fund during the month, your interest credit will be related to the days you held the fund. So, you cannot just jump in to buy on the day before ex-div and claim full month div; you will get accrued interest for 1 day only.

[racqueteer]

Yes, what he said... 

[flipperxxx]

fantastic. got it. thanks a mil, ya'll!  btw / is the accrual method fairly rare?  don't believe i've ever knowingly encountered it.

[anitya]

Mar 4, 2024 2:38:27 GMT flipperxxx said:

fantastic. got it. thanks a mil, ya'll!  btw / is the accrual method fairly rare?  don't believe i've ever knowingly encountered it.

On the contrary, historically, the accrual method used to be more common.  This is a question more for fixed income funds that distribute monthly.  There are a few fixed income funds that distribute quarterly and I will not be surprised if all them are on the NAV change method.

All the PIMCO, MetWest, etc. I knew were all daily Div accrual funds.  When TCW acquired MetWest, the legacy MetWest funds like MWTRX continued on daily accrual while TCW funds like TGLMX did their NAV change thing.  If my memory serves right, Vanguard has a mixture.

Some newer funds, some fly by night and some 1 or 2 fund shops, have decided to do the NAV change method because these days Fund holders check their portfolio everyday and feel good about small continuous increases (hopefully), making it easier to market and gather AUM.  Many fund holders though they know the increases are just time value of money and not real NAV increases still feel good about seeing increases to their NAV.  Just like the $.99 pricing in the supermarket we all like.

Having said that the NAV change method likely results in less administrative burden (and less costs) for the funds in dealing with redeeming shareholders and new purchases into the fund.

As can be imagined, even daily Div accruing funds reflect recognized cap gains in their NAV and as such YE distributions by these funds will be as an adjustment to the NAV.

[flipperxxx]

  interesting.  more stuff i did not know.  thanks for the enlightenment!