Weird stuff in double-inverse ETF land
I get the RSS feed from IndexUniverse.com and a weird thing happened to an article I was interested in today. The article was about the fact that the the Rydex Inverse 2X S&P Select Sector Energy ETF (REC: 4.89 -0.08 -1.61%) went ex-distribution with an 86% distribution. The link stopped working as I went from page 1 to page 2 of the article. I used the search function on the Index Universe website for “REC” and only found an article referencing planned distributions on 12/19. It appears the article I was reading has been taken down. I took another look at the site and the article is back up. You can read it here.
Too bad. I have completed a little research on REC and it looks like shareholders of record yesterday got hosed. Rydex declared a short term capital gain distribution of $86.48 per share. REC shares closed on Wednesday $88.23 below the ending price on Tuesday. Pity the uninformed shareholders.
REC started trading on June 10, 2008 at an NAV of $75. In the last 6 months the shares have traded between (before going ex) $70 and $258. Yesterday’s price ($12.05) plus the distribution equals $98.53, so there are exactly zero shareholders out their who will receive the distribution and actually made 86% on their investment. I would really like to find the guy who bought at $200+ and still holds the shares, has lost 1/2 his investment and has to pay full income tax on 86% of what’s left.
ETF’s are supposed to be tax friendly investments, but it is obvious there are some issues with these double down/up types. Before the Index Universe article disappeared, there was a chart listing a couple of other Rydex ETF’s that distributed 50%+ gains. Traders in these things need to keep a careful eye on distribution dates.
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