Using Portfolio Visualizer's portfolio analysis tool I wondered if the "safe withdrawal rate" data could be used as a substitute for an annuity rate. SWR is a historical data point that changes depending on the historical start and end date. An annuity is a guaranteed income based in part on today's low interest rates. Obviously two different approaches to securing income in retirement. I'd like to consider part of my retirement income being derived from a Safe Withdrawal of stocks, bonds, and alternatives.
Exploring some older mutual funds (VWINX, VWELX, PRWCX, and VGHCX) I discovered the following SWRs (found within the Metrics tab):
VWINX = 7.18%
VWELX = 8.02%
PRWCX = 9.16%
VGHCX = an astouding 14.31%
In other words, for each $1,000 invested in these four funds, each could safely pay out their SWR each year of:
Year 1:
VWINX = $71.80
VWELX = $80.20
PRWCX = $91.60
VGHCX = an astounding $143.10 (close to double VWINX's SWR)
note: the annual dollar amount would adjust based on the annual mutual fund's dollar value at the end of each year:
Using VWINX's SWR (I set the annual withdrawal of a fixed percent of 7.18%) and I tested all four funds over the past 35 years (back tested from 1986 - 2021). All four survived a 7.18% annual withdrawal. Both VWINX and VWELX ending "cash value" were impacted by inflation. The 2021 (inflation adjusted value) of VWINX being only $567 of its original $1,000 value. Both PRWCX and VGHCX value stayed ahead of inflation while paying out 7.18% annually. VGHCX's value grew four fold over the last 35 year time frame. As a result it paid out larger and larger amounts annually compared to the other three fund choices. While VWINX paid out a pretty steady amount over the 35 year time frame (between $70 - $100), VGHCX's pay outs grew from $70 in year 1 (1987) to over $400 - $600 annually (years 13 - 35).
Most annuities don't provide inflation riders and many do not offer a cash value upon death. So strictly speaking even VWINX would be a good substitute for an annuity that pays out 7% with a ending cash value of $1,351 (equivalent to $567 back in 1986). The other three funds were an even better "annuity income" choice at that SWR.
None of these funds busted (went to zero) at this 7.18% Safe Withdrawal Rate. In fact, VGHCX's inflation adjusted cash value was $4,141...four times what was invested back in 1986. In addition, VGHCX provided larger and larger annual income pay outs that kept up with (exceeded inflation). Will the healthcare sector, and more importantly this fund, continue to offer such great performance?
Here's the link to PV with these four funds. The "Metrics" tab has the data on SWR (Safe Withdrawal Rate). Let me know if you find a fund with a SWR higher than VGHCX (14.13%).
PV Link

Apr 3rd Episode:

One of the selling points of CEFs is that because they don't have to deal with money flowing in and out as with OEFs, they don't have to endure cash drag.

I agree. I think in some respects CEFs would be a better structure than open end funds and ETFs were it not for what is euphemistically called the "agency problem," and less politely called "manager greed." Managers hold onto CEF assets like grim death and realize they have a captive asset base regardless of the discount the CEF trades at, so they can gouge investors with high fees. On top of that they often needlessly apply leverage to the CEF because they can charge fees on both the base assets and the leveraged assets, amplifying their fees while simultaneously increasing investors' risks. A truly honorable CEF manager charging fair fees, judiciously using or not using leverage, and mindful of the pain extended discount periods cause, could be a beautiful thing. But it's like spotting an endangered species in the wild. In some respects I think the newer interval fund structure is better, allowing periodic quarterly redemptions of about 5% of assets, but still all of the current ones charge fees that are way too high and are still gaming the system with excess leverage to amplify their fees. But the advantages in the underlying portfolio of being able to invest in illiquid assets without having to worry about shareholder redemptions is a significant one.

Using Fidelity's example of "constructive" ROC with a slight modification:
Let's say a CEF is priced at $100/share, and the fund has set a $5/share annual managed distribution. For simplicity, we'll assume a single annual payment.
Fidelity's example: The fund keeps $5/share (5%) in cash and invests $95/share in a security. That security appreciates 10%. The fund pays the $5 out of the cash as an ROC. The investor is left with a share that's worth 110% x $95 = $104.50, all invested in the single security. No cash remaining to repeat this process.
Modification: The fund invests all $100/share in that security. The value rises to $110. The fund sells $5 of the $110 (recognizing a cap gain of $5/$110 x $10 = 45.45¢) to pay the distribution. The investor is left with a share that's worth $105, and a tax liability of, say 23.8 % (20% cap gains + 3.8% Medicare net investment tax). That amounts to a tax cost of less than 11¢.
In Fidelity's original example, the investor is left with a share worth $104.50 plus an ROC of $5 for a total of $109.50.
In the modified example, the investor is left with a share worth $105 plus an after-tax div of $4.89, for a total of $109.89.
If the former looks better to "some investors", those investors are letting the tax tail wag the investment dog.
ISTM constructive ROC is a post hoc rationalization. One of the selling points of CEFs is that because they don't have to deal with money flowing in and out as with OEFs, they don't have to endure cash drag. Exactly.

Thanks. The first paper references Subchapter M (of Subtitle A) of the tax code. This is where the 50% rule, Section II(C)(1)(b)(i) in the second paper, comes from.
Here's the tax code itself: https://www.law.cornell.edu/uscode/text/26/851
With a 58% allocation to St. Joe, ISTM that there are just two ways that Fairholme could be squeaking in under the 50% limit:
- As you suggested, by growing into the larger allocation, or
- Manipulating the size of its holding, since the 50% test is applied only at the close of each quarter.
Even if there is "constructive" return of capital with a CEF, it still strikes me as deceptive. It's used to maintain dividends. That constant stream of dividends tends to appeal to people who are averse to selling appreciated shares of a non- (or low-) dividend paying fund, because that would be eating into (appreciated) capital. Yet the two are equivalent (aside from tax treatment).
Either way, one is taking money off the table - an investment has appreciated and some of that appreciation is cashed out. The difference is largely one of appearance.

I'm fairly certain there are limits with regard to even nondiversified funds and concentration levels above which they lose their RIC status, but I can't find it at the moment. I see some mention but not in detail here: https://stradley.com/-/media/files/publications/2017/10/04_moderncompliance_vol-ii_17_gedrichroeber.pdf
I think here is a 50% rule mentioned that Fairholme would still qualify as a RIC under:
https://files.klgates.com/files/upload/dc_im_08-managing_funds_portfolio.pdf
One exception I know though is if the fund bought the security and it appreciated beyond the position size it originally purchased it, and the rules make leeway for that. But I have seen funds that have just one or two stocks give up being funds and become regular C Corps in part for this reason. They just basically wanted to own one business.
But for practical purposes I have rarely heard funds state they are returning capital to save the end investor on their taxes because the fund is just doing so well. The most common reason for returning capital is to maintain a distribution level.

If a CEF had 95% invested in one security, it would cease to be a CEF and be in violation of the Investment Company Act. ... In other words, I think this isn't a particularly realistic example of a "constructive return of capital."

It's a simplifying assumption, not intended as a realistic example. I make similar simplifying assumptions when posting on bond fund statistics. I often reduce the portfolio to a single bond. One can then reach the same conclusion for the general case by summing the demonstrated effect over N securities in the portfolio.
Side note: I took a quick look through the '40 Act because I wanted to suggest that my example likewise would violate the Act for an RIC. But while Section 5(b)(1) sets min diversification requirements for diversified funds (open- and closed-end), Section 5(b)(2) does not restrict the concentration of nondiversified funds.
https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf
https://www.sec.gov/investment/fast-answers/divisionsinvestmentinvcoreg121504htm.html
Can you give some indication of how a highly concentrated fund would violate the Act? I would have thought that FAIRX was similarly in violation for years. (It currently holds 58% in St. Joe, and 18% in cash.) Real question.

From the Fidelity link:

For example, let's say a CEF is 95% invested in one security, with the other 5% sitting in cash. That security was purchased at $100, is now worth $110, and the portfolio manager believes it is worth $120. The manager could sell some of the security to pay the distribution, which would then be attributed to a capital gain, in the distribution estimate. Or the fund could meet its distribution commitment from the 5% of cash it has, but the distribution would be attributed to return of capital.

If a CEF had 95% invested in one security, it would cease to be a CEF and be in violation of the Investment Company Act. And if it is holding significant cash to return capital, the cash could act as a drag on its investment strategy. Moreover, excluding muni ones, many CEFs are bought for their income potential in tax deferred IRA or free Roth IRAs, so the idea of saving investors taxes usually isn't foremost in managers' or investors' minds. In other words, I think this isn't a particularly realistic example of a "constructive return of capital." The pass-through example for MLPs in CEFs is legitimate. Mostly, I think return of capital is a means to deceive investors, although purchased at a discount it has a value.

On Thursday, April 15th, we will host two webinars about the MFO Premium search tool site.

The site helps individual investors and financial advisers 1) sort through the vast number of funds available today based on criteria important to them, 2) maintain candidate lists of promising funds to conduct further due diligence on, and 3) monitor risk and return performance of their current portfolios.

Since our last webinar in January, which featured my colleague Lynn Bolin, the site has experienced several upgrades, including:

• Redesigned MultiSearch user interface


• Dashboard of Launch Alerts tool


• Saved Searches feature in MultiSearch


• Expanded Watchlists and Portfolios


• Jump Scroll, Plus Search, and Exclude Category features in MultiSearch

The morning session will be at 11 am Pacific time (2pm Eastern). The afternoon at 2pm Pacific time (5pm Eastern). The webinars will be enabled by Zoom. You are welcome to register for both webinars.

Please use the following links to register for the morning session or afternoon session. Each will last nominally 1 hour, including questions.

Material covered in previous webinar can be found here.

Hope to you can join us again on the call. If you have any topics you'd like discussed, or general questions, happy to answer promptly via email ([email protected]) or scheduled call.

When Guinness/Atkinson converted their two dividend builder mutual funds to ETFs, they picked two symbols for their new SmartETFs: ADIV and DIVS.
ADIV had not been previously used, but DIVS had been used by the defunct-since-2012 Russell Small Cap High Dividend Yield ETF. [1]
Previously used symbols may be easy to pronounce, familiar, or may evoke the investing approach used by the new ETF. While a memorable symbol may confer a marketing advantage, it does not provide a guarantee of sucess.
For example, ETFs that bit the dust last year include CHEP (value), KNOW (insider), TAWK (communications sector), and SEA (shipping sector).
In addition, when a previously used symbol is ‘resurrected’, some third-party ETF research/data providers (such as FactSet) may get confused, and may not - at least initially - accurately report info on a new ETF that uses a ‘resurrected’ symbol.
SUGGESTION
When you pick a symbol for your new ETF, see if you can come up with a symbol that has not been used before. [2]
Click on the links below, for example, and compare the results for ADIV vs DIVS.

https://www.etf.com/ADIV
https://www.etf.com/DIVS
https://etfdb.com/etf/ADIV/
https://etfdb.com/etf/DIVS/

NOTES
[1] As of this writing, ETFDB.com currently identifies the DIVS symbol as the Russell Small Cap High Dividend Yield ETF. FactSet/ETF.com does not currently recognize DIVS at all.
[2] ETF.com chronologically lists ETF closures, going all the way back to 2008.

https://www.barrons.com/articles/arks-cathie-wood-disrupted-investment-management-shes-not-done-yet-51614992508?mod=past_editions
I am not sure if this article on Wood is available without a Barron's account ( but if you dont have one you should, although it is a shadow of it's former self), but it is a fairly lightweight interview with Wood. The references to her faith seem a little contrived. I dont mean that she is not sincerely a person of faith, but the lessons Barron's claims she draws from Christianity to apply to investing seem a bit weak.
It is not surprising that M* thinks poorly of ARRK. Wood violates practically every one of the principles M* claims is necessary for "success". Over concentration, asset bloat, lack of "investing background" holding a significant portion of the float of a lot of companies, etc etc. Of course, if you only make hammers, everything that is not a nail in useless!
I think it is up to everyone to make up their own minds about her process. However, some of the principles that have made her so successful are clearly not ones that Wall Street wants people to buy into ( Investing is left up to professionals with advanced degrees, high fees, lack of transparency etc) hence the negative articles.
I would be a lot more enthusiastic about ARRK if they didn't own as much as 20% of some of their positions ( and recently eliminated this limit).

One of the bigger ones: https://apnews.com/article/vacation-rentals-san-diego-california-vacations-sentencing-6054df4bc328e552ccd5a072025d6bd1

YTD performance is .34% for this well known and outstanding long term fund. Just curious how current investors in Wellington feel about this closure to intermediaries? Is this a good sign, neutral or negative to you?

More like 3.54% YTD. Having a good year in this balanced space.

....And @Simon: my whole intention in opening the TRP brokerage was to use it for single stocks. I already like my stable of TRP funds. I don't really want to add to any, either, because they are all T-IRAs, and there's retirement income here at my house, but no EARNED income to report. (So, contributions would be non-deductible.) TRP won't even let me start the monthly $100 and assign it to the brokerage's "sweep" account: PRTXX. Not unless I already had the minimum $2,500 in there. (And why would I choose to grow THAT one, unless doing so in order to buy a bigger chunk of a single stock, eh? I can do that at my own discretion. MM funds pay virtually nothing.)

The disappointment is that one used to be able to start investing in T. Rowe Price funds without having to meet the minimum fund requirement if you used an automatic investment plan (AIP).

Essentially, you agree to let the fund tap your bank account at regular intervals — usually monthly — until you reach the fund's normal minimum investment.
Many funds [would] let you start an AIP with just $50. Most T. Rowe Price funds, for example, [would] let you start a $50-a-month AIP

https://abcnews.go.com/Business/story?id=7761237&page=1
That was back in 2009. Then, as now, the minimum to open a T. Rowe Price fund was $2,500 (the lower $1,000 minimum applies only to IRAs).
https://www.troweprice.com/personal-investing/help/fees-and-minimums.html

I follow this rule over 20 years and I have done great. I never invest based on prediction or pat attention to them, I invest based on what happened lately, and it never disappointed me. The market tells me what works and what doesn't and why I mentioned the funds/index above. When most stocks+bonds don't work+VIX is very high I start selling.
In the last 12 years I was out 12 weeks which is about 2% and avoided the largest meltdowns.
YTD:
Stocks: SPY =6.35% and very close to all-time high
Bonds: Munis + Multi/Non Trad funds are doing great
The above is already working for a year and many still looking, why?
KISS. As long as it works there in nothing to do or prepare.

NAV does not always decline from ROC payments And not all ROC payments are bad depending on the source of that capital.
Closed-End Fund Return Of Capital: Good, Bad, Or Other

”... an interview a couple of weeks ago where she responded to direct criticisms from Jim Cramer and it was pretty strong counter.”

I’d love to see Louis Rukeyser interview her. Alas - 15 years too late.
@Bud - Here’s a thread on ARK started by @LewisBrahm in February you might be interested in.
https://www.mutualfundobserver.com/discuss/discussion/57784/digging-into-ark-innovation-s-portfolio
Added - Thanks to Bud for the interesting Morningstar story. While I don’t get “good vibes” from this fund or its public profile, I’ll agree some exposure in the ARK companies / style would enhance many portfolios. Not sure if ETF investors are capable of “stampeding out” of an ETF the way those in open end funds can, but that type of rapid exodus would be perhaps my biggest concern.

proxy information:
https://www.sec.gov/Archives/edgar/data/923184/000119312521102371/d162972d497.htm

I believe Vanguard reiterates its prior notices/actions such as limiting your annual $25,000 into the Vanguard Primecap Funds.