Navigating the Mackenzie Global Sustainable Dividend ETF Termination: Tax Strategies and Portfolio Adjustments

The Mackenzie Global Sustainable Dividend Index ETF (MDVD/MDVD.U) officially terminated on June 4, 2025, marking the end of an era for investors in this ESG-themed income vehicle. With its delisting from the Toronto Stock Exchange and final proceeds distributed by June 9, unitholders now face critical decisions about tax optimization and portfolio reallocation. This article examines how the ETF's liquidation impacts adjusted cost bases (ACBs), capital gains exposure, and the strategic advantages of shifting funds into lower-cost alternatives like the iShares S&P/TWX Capped Dividend Aristocrats Index ETF (CDZ).

Tax Implications: The Reinvested Distribution Trap

The ETF's final distribution—CAD $0.56264 per unit for MDVD and USD $0.41143 for MDVD.U—was reinvested and consolidated, meaning investors' unit counts remained unchanged. However, this move has significant tax ramifications:
1. ACB Inflation: Each reinvested distribution increases the ACB of the holding. For example, an investor with 100 units of MDVD would see their ACB rise by CAD $56.26 due to the final distribution. Failing to account for this adjustment could lead to underreporting capital gains when the ETF was liquidated.
2. Capital Gains/Losses: The final proceeds (CAD $28.13/unit) must be compared to the investor's ACB. If the ACB exceeds the proceeds, a capital loss is realized; if it's lower, a taxable gain applies. For instance, an investor with an ACB of CAD $25/unit would recognize a gain of CAD $3.13/unit.
3. Return of Capital (ROC): A portion of the distribution may be classified as ROC, which reduces the ACB but doesn't trigger immediate tax. However, if the ACB drops below zero, the excess becomes a capital gain.

Strategic Portfolio Adjustments: The Case for CDZ

The termination of MDVD presents an opportunity to rebalance portfolios into more tax-efficient and cost-effective alternatives. The iShares S&P/TWX Capped Dividend Aristocrats Index ETF (CDZ) emerges as a compelling choice:

Expense Ratio Advantage

• MDVD: 0.25% (before termination)
• CDZ: 0.00% (as of 2025)

The stark difference highlights how MDVD's high fees contributed to its decline. CDZ's negligible expense ratio reduces drag on returns, especially for long-term investors.

Index Composition Differences

While MDVD focused on global sustainable dividend stocks, CDZ tracks Canadian firms with a 25-year history of raising dividends. Its top holdings include utilities, energy, and financial services—sectors offering stable income streams. For example:
- Fiera Capital (FSZ.TO): 3.46% of CDZ's assets.
- Enbridge (ENB.TO): 2.51%.

Yield and Performance

CDZ offers a 3.67% yield (as of June 2025) and strong recent performance (23.62% YTD, 32.45% annualized). Its Canadian focus aligns with tax-favorable structures, such as avoiding U.S. withholding taxes on dividends.

Action Steps for Investors

1. Calculate ACB Accurately: Factor in all reinvested distributions, including the final June 4 payout. Use Mackenzie's tax documentation to trace adjustments.
2. Act Before June 9: Ensure proceeds are reinvested or liquidated by the distribution date to avoid holding units post-delisting.
3. Shift to CDZ or Alternatives:
4. CDZ: For Canadian dividend stability and low fees.
5. Vanguard ESG Global Stock ETF (VEUR): For global exposure at 0.09% MER.
6. Consult Tax Professionals: Address complexities like ROC treatment and capital loss carryforwards.

Risks of Delayed Action

• Missed Distributions: Failing to sell before June 4 risks being locked into reinvested distributions with no liquidity.
• Tax Overpayment: Incorrect ACB calculations could lead to higher capital gains taxes than necessary.

Conclusion

The termination of MDVD underscores the importance of cost efficiency and tax-aware investing. While its reinvested distributions and high fees limited its appeal, the liquidation now offers a chance to pivot toward ETFs like CDZ. Investors should prioritize tax optimization, reallocate proceeds swiftly, and focus on diversified, low-cost vehicles to sustain income and growth in a consolidating ETF market.

Final Advice: Don't let inertia erode your returns. Act now to reallocate MDVD proceeds, optimize taxes, and secure a more resilient portfolio.