At this point in the year, the most common question I get is, How bad are fund distributions going to be this year?
Despite my better judgment, two years ago, I started to make predictions of the number of “large” distributions we’ll find each season. So far, my predictions have been reasonable – off 13% in 2018 and off 7% in 2019. Since nobody else is making these types of predictions, I often claim these are consistently the best predictions available.
With any prediction, I think we need to start with a baseline. Here are the historical numbers:
In an average year, we’ve seen 350 funds with distributions higher than 10% of NAV. But, you can see how variable these numbers are from year to year.
2019’s numbers were on the low side. I’m expecting the number of large distribution to continue to be on the lower end for 2020. Here are my two primary reasons:
- 2020 provided opportunities to take tax-losses – For obvious reasons, we saw huge stock market declines earlier this year. I expect this decline provided mutual fund managers the opportunity to perform some tax-loss harvesting that’ll result in more reasonable distributions. I know I was able to “make lemonade out of lemons” with some loss harvesting I did for my clients in the first quarter.
- We see reasonable numbers from those who have already reported – Some 15% of fund firms have already provided distribution estimates, and large distribution counts are similar to last year. (I’m using the results from the beginning of the race to predict the final outcome.)
These reasons lead me to predict that the 2020 season will see (drum roll, please) 170 funds with capital gains distributions higher than 10%.
A lower than average number of these distributions is great for financial advisors and investors. I’m crossing my fingers that my estimates are close.