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Strategies & Market Trends : Young and Older Folk Portfolio -- Ignore unavailable to you. Want to Upgrade?

To: jritz0 who wrote (11513)	11/19/2024 1:25:55 PM
From: SeeksQuality	4 Recommendations Recommended By chowder chriscrna ddbpaso Riojas54 Read Replies (1) \| Respond to of 22058

You inspired me to dig through the Fund Prospectus. (The Fact Sheet is far too brief and ends up creating more questions than it answers.) If I am understanding the language properly, and as of the end of 2023, QDPL has 86% of its assets invested in "the S&P500 Component". The remaining 14% consists of three years of dividend future contracts. At the end of the year, when the current dividend future contract expires, they buy a new one that is three years down the road -- presumably cashing in a piece of that S&P500 component to provide the cash to do so. I had previously read that the portion not invested in the S&P500 was "collateral" for the dividend futures, but unless I badly understand the term "collateral", or am badly misreading the prospectus, I think they are simply paying cash up front for contracts that deliver 300%+ the dividends of the S&P500 (based on the total NAV of the fund) (The counterparty risk would be relevant if the people writing those contracts went bankrupt.) The pricing of the dividend futures contracts likely depends on at least three major factors: (1) The interest rate environment. In a world with 1% interest rates, it costs $97 now to buy $100 in three years. In a 5% interest rate environment it only costs $85. That lower cost allows the fund to use less cash on the contracts and thus put more into the S&P500 component. (2) The current dividend yield and anticipated dividend growth. If the anticipated yield is 2.5% of the current value of the S&P500, then you need to buy 7.5% of dividends. If the yield is 1.33%, then you only need to buy 4% of dividends. The latter of course is much cheaper. (3) The liquidity of the dividend futures contracts. The more active that market, and the more people willing to sell them contracts, the cheaper it is for QDPL to operate. The difference between 88% and 90% is relatively minor, and can easily be explained by these three factors above.