4 Funds About to Break Capital Gainless Streaks

Fund companies have started to tell investors what kind of income and capital gains distributions they can expect in December. Fidelity, American Funds, T. Rowe Price, Franklin Templeton, BlackRock, and many others have posted preliminary estimates of their funds' year-end payouts on their websites. Vanguard will disclose its educated guesses on Nov. 11. As usual, there are some whoppers out there.  BlackRock Small Cap Growth Equity (CSGEX), for example, could distribute gains of between 25% and 27% of the fund's Oct. 10, 2014, net asset value, according to BlackRock. That comes a year after the fund paid out a gain that was about 50% of the fund's 2013 year-end NAV.

After more than five years of generally rising markets, many actively managed stock funds have exhausted pent-up losses that they usually use to offset realized gains. That, plus the usual store of manager switches, outflows, and profit-taking, has made it difficult for managers to avoid making distributions. Still, it was surprising to see a few funds that have gone years without paying out capital gains included in the estimates. A handful of funds with Morningstar Analyst Ratings probably will break streaks of 10 or more years without issuing taxable capital gains in 2014. It just goes to show that, just as with performance, past is not necessarily prologue when it comes to shopping for tax-efficient funds.

Silver-rated  Weitz Hickory has already broken its more than decade-long record of not distributing gains. It paid out a midyear distribution of about $1.45 or about 2.5% of NAV. Inveterate value managers Wally and Drew Weitz had been taking profits and building cash earlier in the year as prices continued to appreciate, which led to the fund realizing some long-term capital gains.

 Putnam Voyager will break its streak this year in a relatively big way. It hasn’t paid out a capital gain since before 2003, but the fund family estimates that this year it will make a distribution of between 11% and 13% of NAV in early December. More than 40% of that distribution will come in short-term gains. With a turnover rate that has averaged more than 150% since manager Nick Thakore took over here in 2008, it’s impressive that the Neutral-rated fund was able to stave off big distributions for as long as it did.

 Putnam Multi-Cap Growth (PNOPX), which has been managed by Robert Brookby since 2010, also will make its first distribution in at least a decade this December. The Neutral-rated fund's payout will similarly range between 11% and 13% of NAV and will include some short-term gains.

 T. Rowe Price Blue Chip Growth (TRBCX) will pay out distribution of about $3 or 4.4% of its recent NAV in December. Manager Larry Puglia has always run this Silver-rated fund at a measured, relatively cautious pace, so its long-term tax friendliness makes sense.  The fund, however, has gotten incrementally more aggressive in recent years. Its biotech exposure, for instance, was at an all-time high at midyear. That has been one of the strongest-performing areas of the market this year and its possible Puglia has been reaping gains there, as well as elsewhere in the portfolio. As of the end of the third quarter, the fund had sold some of its shares of  Gilead Sciences (GILD), a top-five holding the fund has owned for at least three years and that has appreciated by nearly 50% for year through late October.