well, a deep dive into this document (
the 2021 Financial Report), and also a refresher of what happened during this 12 month period, will indeed show that the very high yield for IHVV is justified.
Please remember, too, that in Australia, these ETFs have similar features to trusts as far as Australian tax laws go, i.e. any gains during the year must be distributed to unit holders, and will be declared in the unit holders' tax returns.
The 12 months to June 2021 was probably one of the best 12 months to be invested in the share market. The US S&P 500 index, the index upon which IHVV is based, went from 3100 to 4288 during the period in question, a rise of 38%. This would account for the large gains recorded through IHVV's P&L.
@Belli posted a document a couple of posts ago, that document is an extract showing how the distribution is applied for Australian tax purposes. 76% of the distribution is classed as foreign income, most likely as a result of the frequent trading of stocks caused by the need to rebalance to the S&P 500 on a daily basis, as these type of ETFs do.
That 12 months was pretty wild, especially in the 2020 six month period. I know from experience that I was chasing stocks in the sectors moving quicker than other sectors, and if little Kev was doing this, then I'm sure larger investors were doing this too. All up, this chasing of "in" sectors would have caused frequent rebalancing by these index-hugging ETFs. This is borne out by the Balance Sheet (Pg 12), which shows that IHVV was worth $649m at 30 June 2021, and the Statement of Cash Flows (Pg 17) shows that $468m of shares was sold and $427m was purchased. Quite a high turnover of shareholdings.
Such trading would, I have no doubt, be treated as income, and not capital gains, purely because of the size and frequency of the transactions, and the document displayed by Belli supports this. Only 24.2% of the year's distribution (2 x 10.3046% + 3.6016%) was considered by the ETF's managers to be capital gains, most of which was for longer term gains on sale of shares held for more than 12 months.
Maybe a better pair of eyes than mine can find forex income in the financial statements. I couldn't, it all seems to be mixed in to gains on financial instruments. But, during that period the Aussie dollar rose from approximately 0.694 to 0.753 against the US dollar, roughly 10%. Maybe a smarter mind than mine can work out what the result of IHVV's hedging would have been during this time.
It was a very good year to be invested in the US share market with its 38% gain. As a comparison, the Australian market (as measured by XJO) rose only by 24%.
Damn! Shouldn't have researched this. The Hindsight Investor has won again.
KH