Bug in MD2011 handling of security performance?

JFG's Avatar

JFG

May 19, 2011 @ 03:18 PM

Hi,

I have a fund which I purchased last year. It has gained in value, and this year it paid a dividend (as shares). Although I have made a big profit on the fund, MD2011 indicates a tiny %change on cost basis. Here's how to reproduce it:

a) buy 100 shares of company X at €10 a share. cost basis is €1000.
b) shares rise in value by €1 per share to €11. cost basis is €1000, value is €1100, change is 10%.
c) dividend of €1 per share re-invested automatically (DivReinvest). that's €100 / €11 = 9.09 shares. now i have 109.09 shares.
d) share then drops to €10.10 (just above ex-dividend price), so I now have a value of 109.09 x €10.10 = 1101.81.

So far, so good. EXCEPT now MD2011 lists the cost basis as €1100 (original cost + dividend), and the %change as 0.16% (1101.81 / 1100). This means that my investment now shows as only having made 0.16%, whereas it actually made over 10.18% on my actual cost (the original €1000). In other words, the cost basis should list 1000 (not 1100 which includes the dividend), then the %change would calculate properly. Note that my online investment tools display this properly: the dividend is paid in shares and the cost to me is listed as 0, so the cost basis does not change.

Regards,
Scott.

  1. 1 Posted by Tom Freeman on May 23, 2011 @ 02:34 PM

    Tom Freeman's Avatar

    Scott,

    The cost basis is reported correctly. The company paid the dividend in cash and the cash was reinvested which raised the cost basis. And you are also correct that this does not represent the return on Investment, which is a separate metric. You can use the investment performance report to find you ROI.

    Tom

  2. 2 Posted by JFG on May 23, 2011 @ 02:41 PM

    JFG's Avatar

    Thanks Tom. Ok, well I certainly understand the rationale, except in this case the dividend is not paid as cash, it's issued as shares only. To make it better represent my particular situation with this fund, I've entered the dividend as a share purchase at 0 cost.
    Scott.

  3. 3 Posted by Tom Freeman on May 23, 2011 @ 03:10 PM

    Tom Freeman's Avatar

    Scott,

    I've attached a screen shot of downloaded dividend from a financial institution. Notice that first there is a dividend transaction for the cash dividend then a second transaction for the reinvestment.

    Here is a link for the definition of cost basis : http://www.investopedia.com/terms/c/costbasis.asp

    Was this by chance referred to by your fund as "return of capital" instead of a dividend?

    Tom

  4. 4 Posted by JFG on May 23, 2011 @ 03:37 PM

    JFG's Avatar

    Yes, I've used DivReinvest before, however with this particular fund and financial institution, the dividend is issued as shares, and the transaction shows an issuance of shares with a cost of 0, but a share price of (in this case) 55.40, and is labeled "dividend". The share price for the fund is then listed immediately thereafter as ex-dividend.

  5. 5 Posted by Tom Freeman on May 23, 2011 @ 04:14 PM

    Tom Freeman's Avatar

    Scott,

    Then the zero cost workaround as you posted should work.

    Tom

  6. System closed this discussion on Mar 31, 2015 @ 03:40 PM.

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