For the last several years, I have been making guesstimates of the number of mutual funds that will make “large” distributions (more than 10% of NAV) for the year. My predictions are consistently the best available, but that’s because nobody else is silly enough to venture a guess.
With any prediction, it’s a good idea to start with a baseline. Here are the historical numbers:
In an average year, we’ve seen 330 funds with distributions higher than 10% of NAV. But, you can see how variable these numbers are from year to year.
We’ve been a little spoiled these last two years with very low numbers of these big distributions. I’m sorry to predict that this year will be very different; in fact, I’m expecting the number of large distribution to be record-breaking for this year.
Here are my three primary reasons for this prediction:
- Markets have been on a solid run over the last 12 months – Steady market gains give fund managers few opportunities to perform some tax-loss harvesting pointing to higher capital gains distributions.
- Fund outflows continue – Mutual funds continue to see outflows. Outflows require selling. Selling locks in capital gains.
- Numbers are already high for fund companies who have already reported – Some 25% of fund firms have already provided distribution estimates, and we already see a huge number of funds with big distributions. (Yes, I’m using the early results of the race to predict the outcome.)
These reasons lead me to predict that the 2021 season will see 795 funds with capital gains distributions higher than 10%.
If I’m in the ballpark, these numbers are almost 50% higher than 2018’s record numbers. Ugh!
This is one year I’m hoping my predictions are way off.