Even if my Portuguese residency is 10 years away, I am very happy with using an open fund that has such a nice return. Given what’s happening with a dollar and American markets, this is a very nice diversification.
How about others?
What are you invested in that is +20%?
You’re not looking at it in terms of USD, are you? Because if so that’s mostly going to be exchange rate flux
No I refer to my Portuguese open ended fund that grew 20% in EURO.
I’m seeing 19-20% raw (EUR) gain in IMGA (R). When I factor in EURUSD flux, it’s over 31%.
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The downside to this for U.S. citizens is the PFIC obligation to pay taxes on notional profits. This depends on actual fund realization of capital gains, as well as operational profits from interest. My experience with Optimize from 2024 is they are quite active with buy/sell vs buy-and-hold, increasing the annual tax bill.
How is this a downside? You have 2 options how to deal with taxes but generally speaking / it’s a good problem to have. You make money - you pay taxes - you lose money - you harvest tax losses.
Depends on your definition of “make money” - paying taxes today on real income I may see in 7-8 (or more) years is not fun (Optimize, and I assume other funds, do not have distributions).
With Optimize there’s only one reasonable way to deal with taxes (MTM is not applicable). With a QEF election (which I’ve done), a year with paper-gains results in tax liability (while increasing the cost-basis), while a year with paper-losses is not usable to offset other profit. Imagine a scenario of +30%, -25%, +30%, -25%, etc. Overall profit after many years may be quite low, while I’ve paid substantial taxes on the +30% years. When selling shares I’ll have a large capital loss (since I’ve increased the cost-basis substantially), but this will require an equivalent capital gain to offset, perhaps over several years. I use the terms “gain” and “loss” to refer to the fund’s reporting of it’s own trading capital gains/losses and operational income/loss.
If Optimize took an index-fund buy-and-hold approach I’d be much happier since they’d have much lower transactional capital gains, but it appears (at least for 2024) they had a large proportion of transactions which resulted in capital gains. They also had a large amount of interest income (from bonds, I assume), but at least this was offset by their management fees which ended up reducing operational income and the resulting tax obligation.
Oh, and let’s not forget since the capital gains are not broken down by Optimize into short-term and long-term, they should be reported as short-term with the resulting higher tax implications.
Can’t disagree with any of that. Not ideal. I was also assuming QEF is long term, probably incorrectly.
Btw how did you get pfic from them, to know about short vs long term - have you requested it for 2024 or did you use the annual statement provided?
Sounds like it’s not a very sensible option for US taxpayers then. Bizarre they tax you on your unrealised gains.
My rationalization (and I’m not claiming it’s a good one) is that it’s treated like a mutual fund (apropos LT and ST gains). The manager does all the trades behind the scenes, you don’t sell anything, but get stuck with the tax bill for the manager’s trades. IE you’re taxed on what (to you) are unrealized gains.
QEF could be long-term (gains), if the provided data supports it. Optimize provided a year-end summary report to aid in calculating the capital gains (no breakdown, therefore reported as short-term) and operational income. They also provided at my request an itemization of sell transactions with gain/loss numbers, but without the corresponding purchase dates. I plan on asking them to elaborate on this for 2025.
Per instructions of IRS form 8621 (Part3, Lines 6&7), QEF gets broken into ordinary income and LT gains. Also - no - I am not a tax advisor/expert.
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I too am not a tax advisor or expert. You raise a good point - after researching I conclude you are correct and that it is assumed by the IRS that a fund reports its long-term gains as “net capital gain”, while short-term gains are included in the “ordinary earnings” figure. For this reason, you get to report the entire “net capital gain” figure as long-term. I would assume Optimize and other funds know and follow this rule. I appreciate your clarification of this complex subject!
I split my investment in BPI and IMGA. For any non US investors, i highly recommend BPI even though the customer service from the bank is horrendous but if you have the right contact, go for it. I think i’m up 40% on my investment on both
Can you please provide the ISIN of both funds
Or at least the name of each fund
Thanks
See the report from IMGA I posted in Seeking Advice: Optimize Golden Opportunities Fund or IMGA Ações Portugal for Portugal Golden Visa - #32 by ottodelupe