ETF Trends
ETF Trends

There is a new kid on the exchange traded fund (ETF) block, as Next Investments has filed to launch their first ETF.

The new provider is aiming to launch a fund of funds. Murray Coleman for Index Universe reports that the only holding would be the S&P 500 SPDR (SPY) and every month, the ETF’s adviser would sell a certain percentage of the portfolio’s shares in order to generate dividends.

The “return of capital” is return from an investment that is not considered income; it’s when some or all of the money that an investor has in an investment is paid back, to him or her.

The catch to this ETF is that by making predefined distributions on a regular basis, such payouts could be treated as return of capital for tax purposes. This could be a way to earn tax-deferred treatment of distributions from the ETF.

The S&P’s dividend yield is about 2%, and the new ETF’s return of capital will be around 6%, meaning a total distribution of about 8%, with a majority of the payments coming on a tax-deferred basis. This is only yield, though; the fund would remain invested in SPY at all times. According to the filing, at least 80% of its total assets will be invested in SPY.

This fund could potentially lead to a new wave of ETFs sporting largely tax-deferred yields.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.