I’ve been gathering and posting 2015 capital gain distribution estimates for CapGainsValet for the last two months. My database currently has distribution estimates for nearly 200 fund firms. This represents over 90% of the firms I’m hoping to eventually add, which means the 2015 database is nearly complete.
I recently had a look through last year’s database to see how it compares to this year’s numbers. Here’s what I found:
- Fewer funds are distributing more than 10%. Last year I found 517 mutual funds that distributed more than 10% of their NAV. From all indications, 2014 was one of the biggest distribution years on record. For 2015, I’ve found 381 funds that are going to distribute more than 10%. My guess is that we’ll end the year in the 390-400 range.
- More BIG distributions. In 2014, I was able to find 12 funds that distributed more than 30% of their NAV. This year that number has already jumped to 20. Even though the number of 30% distributors has increased, the number of funds that are distributing between 20% and 30% of NAV is about half of what it was last season.
- Several big names in the doghouse. If you take a look at my “In the Doghouse” list, you will find that there are some of the bigger names in the actively managed funds universe. Montag & Caldwell Growth, Columbia Acorn and Fairholme will be distributing billions. Successful funds with large fund outflows are likely going to have trouble controlling future capital gains distributions.
- ETFs are still looking very tax efficient. Although CGV does not track ETF distributions, I am seeing very low capital gain numbers from ETF providers. Market-cap weighted index funds and ETFs continue to be tax efficient.
- More tax swapping opportunities. Last year’s distributions corresponded to a fairly solid year of gains – it is not looking like that will be the case this year. Last year, selling a fund before its large capital gain distribution meant little difference because the fund’s embedded gains were similar or larger. If you bought a fund this year, receiving a large distribution will likely result in a higher tax bill than if you sell the fund before its record date. At my wealth management firm we have already executed a number of tax-swap trades that will save our clients hundreds to thousands of dollars on their 2015 tax return. Have a look through your holdings for these types of opportunities.
So 2015 distributions look like they will be “less fluffy” (in aggregate) than 2014. Unfortunately, these average numbers are not comforting if you happen to own those funds with hairy distributions.