Despite my better judgment, I make an official wild guess at the number of mutual funds that will make “large” distributions (more than 10% of NAV) every year. Nobody else is making predictions in this space, so I joke that I am the best prognosticator around. While my predictions have been reasonably good in most years, there have been years that I’ve been pretty far off. Fortunately, my guesses have been “directionally accurate” every year.
In an average year, we’ve seen 384 funds with distributions higher than 10% of NAV. Last year was very close to average.
Good news! It’s looking like taxpayers will be spared from large distributions in 2023. (Your mileage will vary.)
There are three primary reasons for this prediction:
- Last year’s stock and bond market performance was terrible – It’s hard to have large capital gain distributions without capital gains.
- Fund outflows continue, but not at an unusual pace – Mutual funds continue to see outflows, but this pace has been consistent.
- Numbers are low for fund companies who have already reported – Roughly 20% of fund firms have already provided distribution estimates and the “big distribution” numbers are low.
These reasons lead me to predict that the 2023 season will see 80 funds with capital gains distributions higher than 10%.
If I’m close in my prediction, this will be the lowest year for big distributions since we started tracking this information. Unfortunately, this is little comfort if your funds (or your clients’ funds) are making sizeable distributions. Distribution planning still makes good sense.