Active Dividend Fund Capitalizes on Tax Laws
December 1, 2003
Alpine Management & Research, Purchase, N.Y., has introduced a unique dividend-paying fund that it claims is more active than many new offerings designed to take advantage of the latest tax laws favoring qualified dividends.
The no-load Alpine Dynamic Dividend Fund is specifically designed to capture dividends paid by domestic and foreign companies that qualify for the reduced 15% federal tax made available under the Jobs and Growth Relief Reconciliation Act of 2003. Its focus is mid-cap and large-cap stocks.
Sam Lieber, president of Alpine's mutual funds, said the most similar fund of its kind may be the Huntington Dividend Capture Fund, which was up 14.3% for the past year ending Oct. 31. One difference, though, is that the Huntington Dividend Capture Fund, created in 2001, was not oriented toward the new tax laws.
"Ours is," Lieber said.
Meanwhile, on the exchange-traded fund side, Barclays Global Investors, New York, three weeks ago launched a new fund that invests in a basket of dividend-paying stocks. The new fund targets 50 stocks with high-dividend yields.
One thing Alpine's fund hopes to do that is different from the competition is to trade around a company's ex-dividend date using the 61-day holding period required to take advantage of new federal tax rates.
Alpine's fund, which had been operating a shadow portfolio since June, marks the seventh fund of the group, founded in 1998. The group and its affiliates have $1 billion under management. Lieber says he expects the Dynamic Dividend Fund, launched Sept. 23, to approach that level on its own in "a few years." The Alpine Funds, best known for top-performing real estate funds, already has an Alpine Dynamic Balance Fund and Alpine Tax Optimized Income Fund.
The new $1,000-minimum fund is designed to provide a high level of income and appreciation at the same time, according to portfolio manager Jill Evans. Besides holding a portion of its fund in traditional high-yield stocks such as utilities and financial institutions, it plans to seek out more "interesting plays" designed to provide value. It is expected to consider earnings growth, cash flow and historical payment of dividends. Lieber says it will be a low-beta fund.
"We're not going to buy junk or companies that have clouds hanging over them -- like Kodak," he said. "We're taking an opportunistic interpretation of what the tax laws provide."
"We're screening for stocks that have at least a 4% dividend yield," Evans said. "The current portfolio has an average yield of 5.5%.
Although critics say dividend stocks underperform the market, "We believe this is a perfect time to bring the fund out. It's a great year for the Nasdaq," Evans said. Most mutual fund boards, she added, have only held one or two meetings since the tax law change last May. That hasn't given them much time to react. Alpine's new fund targets conservative investors looking for current income; bond investors who believe they can get as good deals in the equity market and are worried about the outlook for the bond market; and younger investors just starting out seeking an equity income fund for asset-allocation.
Added costs due to heavy stock turnover is not a concern, Lieber said. The price of trading has dropped, and because the company has an array of funds and private accounts, it can trade at institutional rates for pennies. More important, he said, is the trade's execution. As much of the industry shifts to selling funds through advisers, Alpine also is a strong believer in direct sales.
In fact, Lieber had been an analyst and portfolio manager with the no-load Evergreen Funds. Alpine was born after its contract with First Union for the Evergreen Funds' global real estate fund expired. Lieber converted it to an international fund, and now Alpine claims three real estate funds.
"We like the no-load concept," he said. "After everything blew up in 2000, people felt they couldn't sell direct."
However, he maintained, the importance of the load is a school of thought that moves in cycles. He did say, though, that he plans to sell the fund through no-load fund supermarkets -- such as Charles Schwab, Fidelity and T.D. Waterhouse. This, despite the fact that Schwab launched an equity income fund of its own.
Lieber does not consider the Schwab fund competition because it is much more passive. It's possible, he said, that the Alpine Funds might market the Dynamic Dividend fund to fee-based financial planners. Nevertheless, it does not plan to sell its funds through wirehouses, despite the fact that brokers who wanted to offer it have contacted the fund group.
The problem, he said, is that once you sell through brokers, "so many costs get layered on" that the fee structure would not be cost-effective.
Copyright 2003 Thomson Media Inc. All Rights Reserved.