Woof! An exchange traded note (ETN) that tracks the Dogs of the Dow is finally here to take advantage of the Dogs’ "market-beating" strategy. In case you didn’t know, the Dogs of the Dow owns the 10 highest-yielding listings on the Dow Jones industrial average. It holds them at 10% each and rebalances onces a year.
First, the good news: as an ETN, it doesn’t actually own any of the stocks. It’s just making a promise that the fund will return the same as if one did own the stocks, plus their dividends. Since you’re not in actuality getting any dividends, there’s no dividend income to tax. And, since no stocks are being sold, you won’t declare capital gains, either.
Nusbaum says the disadvantage is more of a mental hurdle, as many investors like to see actual dividends arrive in their accounts instead of "perceived" dividends. But once that hurdle is cleared, we imagine most investors would be happy with money coming in, regardless of what form it takes.
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