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I have owned a medium term bond mutual fund at a large mutual fund company for years without making any new deposits or withdraws and I just reinvest the dividends. Each month it consistently pays a dividend of about the same amount. This December that dividend dropped in half. As I understand it, my dividend is just a reflection of the dividends paid to the mutual fund by the underlying bonds. Which means 50% of of bonds paid no dividend in December, which seems highly unlikely.

I called the mutual fund company and they gave me some bullshit explanation about European bonds having problems due to Britex. Can anyone explain how this could happen?

  • Would you care to share the ticker? Was it received on the same day of the month as the usual distributions? December is an odd month for distributions, some funds may distribute twice (mid month and last day of the year) to close out the year clean. It could be that there were costs the fund paid that materially ate in to the distribution and were accounted for at the end of the year. it could be a lot of things. – quid Jan 4 at 23:08
  • ADFIX. Dividend was paid on last days of month just like normal. This is a $1.6 billion dollar fund. In total I estimate they they paid out $1.6 million less than I would have expected, so this not chump change (I base this on $100 less on my $100k investment.). Check my math, but something is fishy here. – Lance Jan 4 at 23:43
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From this Morningstar link, their answer doesn't appear to be b.s. It looks like they lost their shirts on a few futures contracts. See the top holdings section and look at the values. The top holding appears to be European. And in the dividend distribution section you can see the lower dividend for December.

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This was too big for a comment but after looking through the most recent semi-annual report, from September 2018:

There was a fair amount of accrued loss on currency forwards and some futures that all had expirations in December 2018:

enter image description here

Judging by the performance of the market, I'd imagine these have all continued to perform terribly since the end of September when this report was published.

The distribution language indicates:

Distributions to Shareholders — Distributions from net investment income, if any, are declared daily and paid monthly. Distributions from net realized gains, if any, are generally declared and paid annually."

Then looking through the accounting there was an accumulated net realized loss of $78 million. And a total net realized and unrealized loss of $102 million.

And again, if these were already this bad at that point, I'd imagine it continued that way and this loss was netted against what would have been the distribution at the end of the year in accordance with the annual distribution method for realized gains.

  • Thanks, I can see the loses from the link you provided. Being an Engineer rather than a financial analyst I have 2 more questions: – Lance Jan 5 at 15:32
  • 1. Shouldn't these losses have been reflected in share price rather than dividend, not that it really matters but I do feel hoodwinked? 2. I do not see any further losses pending. Should I sale the bond fund anyway or just look at holdings in Dec and see what shows up? – Lance Jan 5 at 15:43

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