To the Editors:
After reading a Seeking Alpha November 5 article about APLS Alerian MLP [an exchange-traded fund that invests in master limited partnerships, discussed in “New Fund Added to the Model ETF Portfolio,” by James B. Cloonan, November 2010 AAII Journal] and the very high expenses of 37% on the profits, I wondered: Did you consider this when you added it to the Model ETF Portfolio?
James Cloonan Responds:
While I think the Seeking Alpha articles perform a service in pointing out the taxability of earnings received by APLS Alerian MLP , I think that it is a bit headline-seeking to suggest this tax expense (which all regular corporations have) is a fee paid to the fund managers as is the case in hedge funds. There is a letter from the fund printed in Ron Rowland’s column in Seeking Alpha, September 6, 2010, that deals with a number of the issues that have been raised. There are quite a few closed-end funds that hold master limited partnerships , and all of them are taxed as regular corporations.
The major issue that creates questions is the fact that earnings will be taxed at the corporate level and will then be taxed again at the individual level. The taxes will not be assessed in exactly the same way as taxes on dividends from regular corporations, but they will be significant. All of this is covered in detail in the prospectus. I believe that for individuals who lean toward mutual funds and ETFs, the ultimate return will be competitive with our other ETFs and will provide diversification and lower risk.
Comment Posted Online to “The First Cut: Cash Flow Kings With Rising Dividends,” by John Bajkowski, November 2010 AAII Journal:
This is very good article for individual investors like myself. However, this article has no print option.
Corrie Therese from California
The Editors Respond:
There is a print option for this article, and all articles on our website. It is found along the left-hand side of the screen below the first couple of paragraphs of the article. The header is listed as “Print this article” and below there are two links: one for a printer- & mobile-friendly version, which is in plain text, and the other to download a printable PDF version, which looks like the print edition of the AAII Journal.
Comment Posted Online to “The Individual Investor’s Guide to Exchange-Traded Funds,” by AAII Staff, October 2010 AAII Journal:
Timing is everything! Been poring over various resources to design an all-ETF portfolio. The downloadable 2010 listing of ETFs in the October issue is invaluable since it now allows Excel features to be applied to the table for sorting according to my preferences. It certainly makes the screening easier before building the portfolio in a site like Fidelity, Morningstar or SmartMoney. This issue more than justifies the modest annual fee for membership in AAII.
David from Florida
Comment Posted to the Stock Screens Discussion Boards
I am specifically interested in how/when the stocks in the Piotroski portfolio are sold [discussed in “Adjusting for the Real World: Testing Variations of Piotroski’s Screen,” by Cara Scatizzi, April 2010 AAII Journal]. For example, does AAII sell stocks that no longer meet the nine criteria (including the criteria for being in the lowest 20% price/book bucket)? And how often is this determination made? Is it done automatically or once a month?
Also, per Piotroski’s criteria, I see that AAII uses current year vs. one-year prior growth for metrics (like ROA). But is this done using the last 12 months of data or using annual filings? For example, if we are currently at September 31, 2010, is AAII comparing ROA growth for the fiscal year ended December 31, 2009, to ROA growth for the fiscal year ended December 31, 2008? If this is the case, wouldn’t that mean ignoring quarterly data for the first three quarters of 2010?
The Editors Respond:
AAII does not actually hold all the companies that pass the particular screens. We run the screens on a monthly basis and report the companies that pass the screen at a particular month-end date. These passing companies are updated once a month and are usually posted online by the 15th of the month. The list of passing companies represents a hypothetical portfolio, which is used to track the screen’s performance, also updated once a month at the same time.
The criteria used in growth metrics, such as return on assets), is the last fiscal year compared to the fiscal year two years ago. Although this does ignore more recent quarterly data, we believe it to be the best interpretation of Piotroski’s nine criteria.