Canadian Mutual Fund Exchange - funds switched

jwp.perry

Between March 18, 2022 to June 1, 2022 my investment company is switching funds due to something to do with trailer fees per Canadian regulation. On Money Market funds everything is easy to handle as quantities switched remain the same even though the fund stock code changes.

However, I have several mutual funds where along with the stock code change the quantities change. I am trying to wrap my head around how to handle this in quicken Canada so that my income and capital gain records make sense.

I have tried using the remove shares transaction but I will still have to change the mutual code to the new one which I think will mess everything up when I change the code.

I am thinking that the best way is to sell the old series and buy new series but that is going to mess up all my income and gains records.

Has anyone got any ideas on how the proper way to transact this and try to keep income and gains valid.

Tom Young

Doesn't the Canadian version have the "Mutual Fund Exchange" action?  That's the action generally used here.  It handles the both the ticker symbol change and the rate of share exchange.

It's problem, right now, in the US version is this action will give bad cost basis results if you've been using average cost as the calculation.  I wouldn't be surprised if the Canadian version has the same flaw.  The advice I've seen here is that you need to change away from "average cost" before using this action, and, of course, making a backup first.

jwp.perry

Mutual Fund Conversion does not appear in the security action pull down menu when creating a new transaction. However when I go into edit a transaction "Mutual Fund Conversion" does appear in the pull down, so I guess it assumes you want convert all of that particular mutual into another mutual code. I will have to experiment with it, thanks.

jwp.perry

Ok, I have tried using Mutual Fund Conversion but running into all sorts of problem. When I try to create the conversion, it will not take because of the message "you should use two transactions: one to sell the shares that you hold and one to create your short position.

So, then I sell the shares per above and then try to do the Mutual Fund Conversion but I get this message: "No shares available for the acquired security.

Anyone experience this?

Tom Young

Those warnings make no sense in the context of a mutual fund conversion.  Another thought: "Mutual Fund Conversion" doesn't appear among the list of actions available if you use the pull-down menu that's available in the transaction list (register) itself, but it does appear if you click on the Enter Transaction button at the top of the transaction list. 

The other action you can use is the "Corporate Acquisition (stock for stock)."  It too will pick up the correct ticker symbol for the new security and handle stock quantity conversions.  The only problem with this action is that it works throughout your file, i.e., any other place where the "old" security is held.

jwp.perry

Weird that the "Mutual Fund Conversion" does not appear in the ordinary pull down but does when you click on the enter transaction. How did you stumble on to that? Anyway that worked for me and other than a gzillion transactions I have got something to work with. I appreciate you time and your help. Thanks very much Tom.

JosefW

Hi jwp.perry,

Regarding Mutual Conversions or switches there is a simpler way to do it.

For fun I tried to do a "Mutual Fund Conversion" from the Enter Transactions menu on a fund that I've held since 2008. It reinvests a monthly dividend. I carefully entered all the required information but the conversion process which goes back and converts each of the 168 dividend reinvestments plus any sales or purchases took about a half hour and made a mess of it.
Luckily I had made a copy of my main file to do the conversion experiment and just went back to original.

If you've been keeping track of all your transactions for the fund including buys sells and dividend reinvestments, all you have to do is the following.

If you're just switching from a different series of the same fund, simply enter a sell transaction for the old fund and then buy the new fund using the ACB (Adjusted Cost Base) of the old fund for the cash proceeds amount and the same amount for the new purchase.

Quicken shows this number in the "Cost Basis" column under the Portfolio view if you have it included in the displayed columns. Your brokerage should also show a "Cost Basis" number that you could use as well.

For example, if your Cost Basis for the old fund is $5,000 and the current market value is $6,000, then just enter $5,000 as the proceeds of the sale for all units or shares.
When buying the new fund simply use that same ACB number ($5,000) with the new share amount, which will automatically calculate your cost per share for the new fund.
Since this is a switch, and the sell and buy amounts are the same, it won't affect your cash balance.

When the sale and new purchase transactions are completed, just do an update to the current share price, which should show the same current value as the old fund ie, $6,000, and your net Gain or Loss should be the same as for the old fund, i.e. ($1,000), giving you an accurate number for your Capital Gain or Loss amounts at the date of conversion and going forward.

For Capital Gains reporting purposes, this will give you virtually the same numbers in two transaction entries as what the Mutual Fund Conversion tries to do in what could be hundreds of entries, (If it actually works correctly, which mine didn't)

Any dividends that you've already received in the old fund will still show up in your Investment Income reports, as will ones that you receive in the new one going forward.

jwp.perry

Hi Josefw, thanks for your input, I will give it a try. Currently I am running several Quicken files with different scenarios. I am trying to let them run a bit until I am comfortable with the data, as sometimes it takes a while to realize you are not getting what you thought you were going to get.

Here is a good example of what is happening to at least a dozen funds see the following transactions:

NB6840 NBI BND-I2 APR 22,2022PART OF SWITCH ORDERUNSOLICITED SELL - 2,788.807 $8.998
NBC740 NBI BOND-F APR 22,2022PART OF SWITCH ORDERUNSOLICITED BUY - 2,620.050 $9.578

As you can see, the fund code changes and is a different price and also I am issued less shares than I had in the original fund.

I had problems with the "Mutual Fund Conversion" and gave up on it however the "Corp Acquisition -stk for stk" worked ok, retained my original cost, and the gains, etc. appeared to be good. The problem with it is "all my graphs are only available from the date I did the transaction and all history is lost, in other words I have lost all the graph data from 2010 right up to 2022.

I have not tried your solution yet but from what I see it is going to give me the same problem with the graphing, which I find very useful.

I have tried another work around which retains my graph data, it is a little sloppy but at least maintains a record and trend although the actual numbers are incorrect by a small percentage. The way I accomplish this work around is by going into the security list, editing the security code from NB6840 to NBC740 with some notes. When I make the change the system asks if I want to carry the old price for share over to the new code and of course I check "yes". I also have to use the "shares subtracted" to balance my shares, using the example above, I remove 168.757 shares. So in the end, I have all my original costs, re-invested dividends and current market value; so now I have all my graphics although not totally correct. Currently I am monitoring this to make sure I have not overlooked something, but at this moment in time it seems to be the option I can live with.

I have transaction data on quicken going back to the late nineties. It is a shame that Quicken hasn't thought this out because any of these options does not give an ideal result and makes one lose confidence in the system and data.

I am also currently running MoneyDance in parallel and will try to see if they have a better solution.

Thanks for your input, I will try a scenario but am quite sure it will cause me to lose all my graph information.

jwp.perry

Success:
I have experimented with another method and this seems to accurately display the #Shares, Cost Basis, Amount of Income and Capital Gain or Loss. It also maintains Graph History which was important to me.

This is the method I used so I do not forget myself lol:

Go to the security list, edit and change the Security Code to the new Code. In my case NBC6840 edited to NBC740 (Do not “add” the new security, make sure you “edit” the change)
Make sure that you Check the box to carry over the old price data
Note that the old Security Code will disappear but all the data from the old one will appear in the new security code

PS: if it is a one for one, I think that is all you have to do but better experiment

Perform a Corporate Acquisition transaction (Stock for Stock). (Note: I could not get the “Mutual Fund Exchange” to work properly and gave up trying – It was generating ridiculous price per share, like $8056.014)
Company Acquired = The New Security Code,
Acquiring Company also = The New Security Code,
New Shares issued = 1 if there is a one for one but in my case because I ended up with less shares therefore divided the new shares by the old shares 2620.050/2788.807= Ratio 0.9394877451182531 in my case
Price per share of the Acquiring Company = the New Security price per day on the date of the change

After entry Quicken goes through the generation of multiple historic “Added” transactions for all the dividend distributions. and then a “Remove” the old Security total. If you do not have a fast enough computer it may bog down.

At finish, I had a very small variance of 0.005432 shares which I used the “Remove Shares Transaction” to balance everything else.

The only problem I have observed is that it will not auto download the new security price day by day using “one step update” and I cannot figure out why, however it is not a problem for me because I pick up the prices as I enter any monthly dividend payouts and also update the price every weekend manually. If someone finds a solution to this I would appreciate it getting passed on.

Otherwise, everything seems correct, hope this helps someone else and if anyone thinks this will screw something else up, please let me know as I will be running in parallel for a few weeks to make sure all is well.

JosefW

Hi jwp.perry,

I admire your perseverance on this issue. Regarding old price data for historical graphs you are absolutely correct. If you use the method of selling the old mutual fund at cost and buying the new fund with the same cost, you will lose the historical price data.

I have not tried your suggestion of the Corporate Acquisition transaction, although it sounds like a good proposal.

I am assuming your trying to do this for mutual funds that have switched to a different series of the same fund.

After having acquired the new shares have you tried opening the "Edit Security" window and then checking to make sure that it is listed as a mutual fund (instead of a Stock)in both the "Type" and "Exchange" boxes, and then trying to update the price again?

For interest I checked the fund codes in Morningstar which is very comprehensive in registering all mutual funds. I was able to find NBC6840 (NBI Bond Fund Investor 2 Series), but nothing came up for NBC740. Are you sure this is the correct fund code. If it is then maybe it's a new fund that neither Morningstar nor Quicken is tracking yet.

This might also explain it not updating prices.

jwp.perry

Hi, yes this particular code is set up as a mutual but still no downloaded prices are appearing. I tried changing it back and forth without any result.

NBC740 does exist, in fact it has been around for sometime, back to 2014 https://ycharts.com/mutual_funds/M:NBC740.TO/net_asset_value I noticed it is the same for a number of the mutuals. This change has to do with some regulation regarding commissions, for instance NBC6840 had a MER of 1.17% and NBC740 a MER of 1.0%. They seem to be transferring over to one of their other funds that has the 1.0% MER. Others I looked at also seem to be going to 1.0%

The whole thing is just a big pain because of the share adjustment factor, probably would have been easier to sell. It has not done well because of the bond vs interest thing but has been great for income.

Money Market funds are no issue because you just have to change the name since it is a one for one change.

Thanks Josef

JosefW

Thanks jwp.perry for the Ycharts reference for NBC740. I also found it on the Globe and Mail and Barcharts sites, and it now shows up in Morningstar.ca. But I wasn't able to get any price updates for it in Quicken either after trying a test buy as a mutual fund holding. It seems the database that Quicken uses does not include it.

This automatic switching has to do with a regulatory change that has just been implemented. It was done for "do it yourself" investors using Discount Brokerages. These discount brokerages would collect trailer fees (about 0.5 to 1.0% extra), which were included in the fund fee. It was originally designed to compensate independent financial advisors. Since Discount Brokerages do not give advice, they were finally forced to no longer be allowed to sell funds with embedded trailer fees, which the discount brokerages would just pocket themselves.

This has resulted in a forced switch of higher fee funds that clients were holding into F series or funds that don't pay trailer fees. These type of funds were hitherto only available to clients in full service brokerages where the advisor is compensated for advice by a fee based on a percentage of the client's entire portfolio, usually about 1%.

Although designed to benefit DIY investors, this switch has certainly been a pain. The downside is some discount brokerages like Scotia iTrade have now resorted to charging a flat $9.99 commission for buying, selling and switching of any mutual fund at any amount, which prior to this had been free. This is a real setback to small or beginning investors.

Regarding mutual fund pricing histories, this has always been a big shortcoming for Quicken. Although it allows importing daily prices for most stocks going back 5 years, Mutual funds will only bring in about the last 2 months when a new fund is added. It would be great to see this improved.

For price histories, other than imputing them manually, there is also a feature under "File" - "File Import" - "Import Security prices from CSV file". Bar Charts has a feature that allows the download of historical prices (up to 2 years) to CSV files with a free membership and longer periods for paid memberships.
https://www.barchart.com/etfs-funds/quotes/NBC740.CF/price-history/historical
Ycharts may also be able to do this.

You can also get these 2 year price histories with a free subscription to Globe and Mail, the data for which is also supplied by Barcharts.
Unfortunately I was unable to import the price history into Quicken for NBC740 since it is not recognized as a symbol in Quicken.
However I was able to pull in 2 years of prices using the recognized symbol NBC6840. It was tricky since the data as exported by Globe and Mail doesn't quite match the format Quicken is looking for, but it can be tweaked to match. Check Quicken Help for details.
This would be a good solution for any funds that are recognized by Quicken.