Recent Proshares Capital Gains – Tax Problem?

There have been several significant capital gain distributions from our friends over at Proshares. As the year progressed, the gains grew for many of the Short ETFs and now they are passing-through to shareholders. (See list of distributions HERE)

On one hand, it is great that there have been gains in an otherwise horrid year for equities. On the other, who wants gains in positions that are part of a core portfolio?

Here is my take:

  1. If you were so lucky as to be invested in one of the Proshares Short ETFs for part of the year, you should have made yourself a good chunk of money.
  2. If you are a recent investor and this capital gain stings, you can easily offset the gain (below)
  3. Realize that the double-short ETFs are not intended to be long-term holdings. Rather, they are short term hedge positions that will be rotated in and out of depending on the market conditions. This will create gains/losses on the transactions over time.
  4. These days, portfolios should be managed with protection and growth in mind, then tax efficiency as the greatest tax efficiency is provided by a buy-n-hold, low-turnover approach. I would much rather take a capital gain distribution that may create a taxable event than a 40% loss. Right?
  5. To be upset with any gain in 2008 requires an serious adjustment of expectations. (Repeat that a few times)

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