If you are tracking the sell stops for your positions, it’s imperative that you adjust the “high” numbers.
For example, let’s say that you bought an ETF/mutual fund earlier this year or last, and it reached a high price of $10 since you bought it. This high price becomes the basis from which you calculate your 7% trailing stop loss point.
Let’s say a distribution of $0.25 is declared. Since any distribution reduces the price of the security by the same amount, you will also need to adjust your high price down to $9.75. If you don’t, you will be getting an incorrect signal when your sell stop gets triggered.
In this example, the distribution of $0.25 equaled 2.5% of the current price. If you don’t adjust, you will be suddenly working with a 4.5% trailing sell stop instead of my recommended, or your intended, 7%.
As an aside, many brokerages also don’t account for distributions right away in their YTD performance figures. Simply being aware of that will avoid you having “sticker shock” when suddenly your returns are showing a much smaller number than you’ve seen before the distribution occurred.