Timing for Re-balancing SIPP Funds

ggmf

Can I ask how those who DIY and any IFA’s who wish to contribute, how you handle re-balancing of a SIPP portfolio, with income funds.

I recently received communication from my IFA who had been reviewing the funds in my portfolio. The recommendation was to sell four of the held funds and replace with three alternate funds.

Taking his advice, I signed the authorisation for the fund switches and returned back to my IFA. On Friday it was reported that the 4 funds had been sold, with the proceeds deposited into the SIPP cash account ready to be reinvested, hopefully next week.

My question is regarding the timing of selling of the funds. Three of the four funds being sold, were due to provide income in early May via dividend payments, as I no longer hold these funds, I have assumed that no dividends will be received from these funds – correct?

When re-balancing, do you usually note when any dividends may be due, then, dependent upon the timescale, wait until any dividends due are received and then sell the fund and perform the re-balancing?

bowlhead99

If you no longer hold the funds and you had sold them before they went ex-dividend, then you sold them with the rights to the dividend and you will not be able to keep the dividends for yourself. You will of course have got more money for selling them than if you had sold them without the rights to the dividend.

However, the ex-dividend date for funds is often well in advance of the dividend payment date. If the ex dividend date for the May payments was end of March or early April, you will still receive the May payments because you sold them without selling the rights to the dividend.

But in terms of timing, a forthcoming ex-dividend date is not really a major consideration for rebalancing. The purpose of rebalancing is to move your portfolio to (or towards) a preferred asset allocation, and it's something that would be done maybe once a year or twice at most. If you had ten funds which all had different dividend payment dates there would never be a good time to do a rebalancing process because you would always be looking to stay 'out of balance' a little longer while waiting to collect the next dividend.

Generally the IFA would have your dividend income be paid into a cash float and periodically reinvested into the target allocation. If no dividend is received for May, there is simply less money sitting around needing reinvestment. It's not really a problem.

Whereas, if you are in drawdown and actually looking to pull money out of the SIPP from time to time, the IFA looking after your assets would typically ensure that there would be sufficient buffer left in the cash float to still be able to pay the forthcoming withdrawals, even if a fund is changed so that a May dividend is missed (e.g. because the new fund is only paying out in March and September instead of May and November). Because it is not known exactly what dividends will be produced over the next year anyway, and having a decent cash float ensures you don't need to sell assets at market low points to give you the money to meet your withdrawal requirements.

AnotherJoe

ggmf wrote: »

When re-balancing, do you usually note when any dividends may be due, then, dependent upon the timescale, wait until any dividends due are received and then sell the fund and perform the re-balancing?

No because its a wash, the price will be higher if you sell with dividends still due rather than ex-dividend. I however dont care what the dividends are, I will sell units for income if needed.If you were only living on the dividends / needed that cash, and you have not passed the ex dividend day then just dont invest all that money you have waiting to buy put aside an amount equal to the dividend.

[Deleted User]

While dividends are a non-issue, what you are describing isn’t “rebalancing”.

Replacement of funds with alternative but similar products should be a straightforward calculation based on long term costs and alignment with your investment policy.

bostonerimus

When I was rebalancing I would take a look at my funds at the end of each month and if any had drifted by more than +/-5% from the allocation I would rebalance. I think you might have a bigger issue than rebalancing though; why would your advisor have you selling 4 funds entirely? It would seem that they didn't do a very good job setting up your income portfolio.