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. That being said, last year’s prediction was off by less than 1%.
In an average year, we’ve seen 387 funds with distributions higher than 10% of NAV. Last year’s numbers broke all records since we’ve been tracking big distributions.
I do have some reasonably good news … I’m expecting 2022 to be an average year.
Here are my three primary reasons for this prediction:
- Stock and bond markets have dropped substantially – It’s hard to have large capital gain distributions when there are few areas with capital gains.
- Fund outflows continue – Mutual funds continue to see outflows. Outflows often lock in capital gains.
- Numbers are average for fund companies who have already reported – Some 15% of fund firms have already provided distribution estimates, and we’re seeing pretty average numbers.
These reasons lead me to predict that the 2022 season will see 456 funds with capital gains distributions higher than 10%.
If I’m close in my prediction, we’ll see a 40% decline from last year’s numbers. Sadly, any taxable distribution is going to be especially painful in a year without gains.