The Lowdown on Mutual Fund Capital Gains 2019 Edition
Many funds are planning big payouts, but massive distributions are less common than they were a year ago.
Brace yourself: 2019 is apt to be another not-so-happy capital gains distribution season, with many growth-oriented mutual funds dishing out sizable payouts.
But based on a review of the impending distributions from top fund companies, the tax pain is likely to be less severe this year than in 2018. Large distributions that account for more than 10% of funds' net asset values appear to be less widespread than they were last year, at least among very large, widely held funds. One notable exception is Invesco, as extensive manager changes resulting from Invesco's recent acquisition of OppenheimerFunds led to big distributions at a number of large funds.
And to the extent that investors do receive gains, one salve is that the market has performed better in 2019 than it did in 2018. The fact that investors actually have profits in many of their holdings makes capital gains easier to swallow than in 2018, when many investors' fund holdings ended up in the red.
Why Is This Happening?
Before looking at distribution estimates, let's first review why payouts have been especially high in recent years. First, stocks have been running up for the better part of a decade, and most U.S. equity funds hold appreciated holdings in their portfolios. At the same time, investors continue to yank their dollars from many actively managed funds, and that forced selling can compel management to sell appreciated positions. Those distributions in turn are made to a reduced group of shareholders. That's where big capital gains distributions come in.
Should You Care?
If you hold a fund in a taxable account and it makes a big distribution, you'll owe taxes on the distributed gains unless you can sell losing positions to offset the gains. And you'll owe taxes regardless of whether you spent the distribution or reinvested it.
If you own a holding in a tax-sheltered account, you don't have to worry about your funds' capital gains distributions; you'll owe taxes only when you begin selling your holdings. (Qualified withdrawals from Roth IRAs aren't taxed at all.)
It's also worth noting that reinvested capital gains help increase your cost basis; that has the potential to lessen the amount of capital gains taxes due when you eventually sell the position. If you hold a serial capital-gains distributing fund in your portfolio, selling it may cost less than you anticipated, owing to the step-ups in cost basis you've received in years past. Check with a tax advisor to help determine whether selling pre-emptively makes sense.
Without further ado, here's a review of the distribution estimates at some of the larger fund shops. (Each fund company name links through to its list of distribution estimates.)
Distributions from various AB equity funds are smaller than in 2018. AB Small Cap Growth (QUASX) is poised to distribute the largest payout in the firm, amounting to 10% of its September-end NAV. AB Discovery Growth (CHCLX) and AB Growth (AGRFX) will make distributions that amounted to 7% of their September-end NAVs. All three funds made even larger capital gains payouts in 2018.
American Funds presents its distribution estimates in a percentage range based on their NAVs as of the end of October. Bronze-rated American Funds Growth Fund of America (AGTHX) plans to make a late-December long-term capital gains distribution amounting to 7%-10% of NAV; it also made a sizable distribution in 2018. Sibling American Funds New Economy (ANEFX), also a large-growth fund, is planning a distribution in the 6%-9% range. American Funds Growth Portfolio (GWPAX) plans to pay out 5%-6% of NAV, while American Funds SMALLCAP World (SMCWX) is targeting a 3%-6% distribution. In general, capital gains distributions from the firm's equity funds are a bit lower than in 2018, with payouts from most funds clustering in the low single digits this year.
Gold-rated AMG Yacktman (YACKX) and Silver-rated AMG Yacktman Focused (YAFFX) both made sizable distributions in 2018. Their estimated payouts for 2019 are a bit smaller but still meaningful. AMG Yacktman will distribute about 7%-8% of its NAV as of September-end, while AMG Yacktman Focused will make a 12%-14% payout. Silver-rated AMG TimesSquare Small Cap Growth (TSCIX) is estimating a payout in the 13%-15% range, while Bronze-rated sibling AMG TimesSquare Mid Cap Growth (TQMIX) anticipates a 13%-16% payout. AMG Managers Montag & Caldwell Growth (MCGFX), currently rated Neutral, is also anticipating a sizable distribution of about 9%-11% of its NAV. One smaller fund making a whopper of a distribution is AMG Managers Special Equity (MSEIX), which is estimating a payout that amounts to 23%-28% of its NAV. Neutral-rated AMG Managers Skyline Special Equities (SKSEX) will be making a distribution that amounts to 10%-12% of NAV. The firm expects to make all of the distributions in mid-December.
Capital gains distributions from Ariel funds will be fairly modest this year. Neutral-rated Ariel Appreciation (CAAPX) will distribute about 6% of its current NAV on Nov. 21, while Bronze-rated Ariel Fund (ARGFX) will pay out roughly 5% of its NAV at the same time.
Artisan funds will be paying out capital gains distributions on Nov. 21. The largest distribution, as a percentage of assets, will come from Silver-rated Artisan Mid Cap (ARTMX); it will pay out 12% of its current NAV. Silver-rated Artisan Small Cap (ARTSX), run by the same team, expects to distribute capital gains equal to 8% of current NAV. Bronze-rated Artisan Mid Cap Value (ARTQX) is planning a distribution equal to 10%-11% of NAV. Several of the firm's international funds will also make distributions. Bronze-rated Artisan Global Equity (ARTHX) and Silver-rated Artisan Global Opportunities (ARTRX) will distribute 7% of current NAV apiece. Artisan International (ARTIX) will distribute 5% of its current NAV.
As 2019 winds down, a handful of BlackRock funds are anticipating meaningful distributions. Bronze-rated BlackRock Capital Appreciation (MDFGX) anticipates a long-term capital gains distribution of 10%-11% of NAV on Dec. 6, while BlackRock Basic Value (MDBAX) is expecting to pay out 9%-10% of its NAV in long-term capital gains on Nov. 27. BlackRock Advantage Small Cap Growth (PCGEX) will distribute 6% of NAV in long-term capital gains on that same date; BlackRock Focus Growth (MDFOX) and BlackRock Global Dividend (BABDX) also anticipate distributions in the 5%-6% range. Finally, most of the funds in BlackRock's LifePath Smart Beta series of target-date funds are expecting to make capital gains payouts ranging from 5% to 12% of NAV. This likely won't affect most shareholders, however, because target-date funds are typically held within the confines of tax-sheltered plans like 401(k)s.
Columbia Acorn funds have made some large capital gains distributions in recent years, but they are slightly lower in 2019. Some of the largest distributions, as a percentage of their NAV, are from the firm's domestic funds. Columbia Acorn Select (LTFAX) leads the way with an estimated distribution of 10.5%-13% of NAV on its A shares; Columbia Acorn (LACAX) and Columbia Acorn USA (LAUAX) anticipate payouts that amount to 9%-11% of NAV. Elsewhere in the family, some of the biggest capital gains distributions will come from Silver-rated Columbia Seligman Communications & Information (CCIZX) and Bronze-rated Columbia Seligman Global Technology (CSGZX); payouts are estimated to be between 11% and 13% of NAV. Neutral-rated Columbia Select Large Cap Growth (UMLGX) is anticipating a payout of 10%-11%. Columbia Disciplined Core (CCRZX) will make a payout amounting to 8%-9% of its NAV, as will Columbia Disciplined Value (CVQZX). Columbia Disciplined Growth (CLQZX) is anticipating a distribution of 7%-8% of NAV. Columbia Dividend Opportunity (CDOZX) expects to pay out 9%-10% of NAV. Many of these funds made meaningful distributions last year as well.
Dodge & Cox
Dodge & Cox will make its capital gains distributions on Dec. 20. Dodge & Cox Stock (DODGX) will pay out 6% of its October-end NAV, whereas Dodge & Cox Global Stock (DODWX) and Dodge & Cox Balanced (DODBX) will pay out 4% and 5%, respectively. Dodge & Cox International Stock (DODFX) will not be making a distribution.
Many of Fidelity's best-known funds aren't making large distributions: That includes Fidelity Contrafund (FCNTX) (3.4% of its September-end NAV) and Fidelity Low-Priced Stock (FLPSX) (0%), both rated Silver. Neutral-rated Fidelity Magellan (FMAGX) will be making a sizable payout amounting to 12% of its NAV in mid-December, though; the storied fund will also experience a manager hand-off in January, with Sammy Simnegar replacing Jeff Feingold as lead manager. But portfolio changes already appear to be under way as Simnegar has joined Feingold at the helm. Fidelity Capital Appreciation (FDCAX), also rated Neutral, is expecting to make a capital gains distribution that amounts to 12% of its September-end NAV on Dec. 9. Fidelity Independence (FDFFX) expects to pay out 10% of its NAV at the end of December, while Fidelity Trend (FTRNX) will make a payout of roughly 8% of its NAV on Dec. 23. Also notable are the distributions from Fidelity's Freedom Index series, the firm's target-date funds. The funds are anticipating payouts that range from the high single digits, as a percentage of their September-end NAVs, to 17%. Of course, assets in most such funds are held in tax-sheltered accounts like 401(k)s, so the distributions will probably be a nonevent from a tax standpoint for most shareholders.
Among sizable funds under the Franklin Templeton umbrella, Franklin Small-Mid Cap Growth (FRSGX) will be making one of the largest distributions, amounting to 18% of its Sept. 27 NAV. Franklin Biotechnology Discovery (FBDIX) will make a distribution of 13% of its NAV, while Franklin Growth Opportunities (FGRAX) anticipates a distribution of 9% of NAV; it made a similarly large distribution last year. Franklin Growth Allocation (FGTIX) will pay out 8% of its late-September NAV, while Franklin Mutual U.S. Value (FRBSX) will make a distribution of 6% of NAV.
Harbor Funds will make capital gains distributions on Dec. 16. The largest distributions will come from Harbor Mid Cap Growth (HIMGX), ranging from 19% to 21% of NAV, depending on the share class. Silver-rated Harbor Capital Appreciation (HACAX), the firm's largest fund, will also distribute 8% of its NAV; it made a similarly sized distribution last year as well.
Some sizable funds at this sprawling fund complex will be making meaningfully large capital gains distributions in December, in part because of a fund-manager reshuffling set off when Invesco acquired OppenheimerFunds. Invesco Oppenheimer Capital Appreciation (OPTFX), a Neutral-rated large-growth fund, comes in toward the top of the list, anticipating a payout equal to 21% of its NAV. The fund underwent a management change at midyear; that switch likely triggered the flushing out of some long-held positions. Invesco Mid Cap Growth (VGRAX) is anticipating a 20%-of-NAV payout, also because of a management change; that fund is also rated Neutral. Invesco Oppenheimer Value (CGRWX) will pay out 20% of its NAV. A host of other funds are making smaller but still significant payouts, including Invesco Small Cap Discovery (VASCX) (15% of NAV), Invesco Oppenheimer Mid Cap Value (QVSCX) (14% of NAV), and Invesco Charter (CHTRX) (13% of NAV). Shareholders who own the funds in taxable accounts should scrutinize the impending distributions of their holdings and think through the tax implications before making any changes.
A handful of Janus Henderson funds are planning to distribute meaningful capital gains in December. Janus Henderson Contrarian (JCNAX) and Janus Henderson Global Technology (JATAX) will both pay out distributions of 9% of their August-end NAVs. Janus Henderson Research (JRAIX) will make a 7%-of-NAV payout.
A host of sizable funds from the JPMorgan complex are on track to make meaningful capital gains distributions this year. JPMorgan Large Cap Growth (OLGAX) anticipates a payout of 12% of its NAV, and it made a 10% distribution last year as well. JPMorgan Intrepid Growth (JIGAX) is anticipating a distribution of 11% of NAV; it too paid out a sizable (8%) gain last year. JPMorgan U.S. Equity (JUEAX) is expecting to pay out 9% of NAV. Several other funds will be making distributions in the range of 6%-8% of NAV, including JPMorgan Global Research Enhanced Index (JEITX), JPMorgan Growth Advantage (VHIAX), JPMorgan Mid Cap Growth (OSGIX), and JPMorgan Small Cap Growth (PGSGX). JPMorgan Tax Aware Equity (JPEAX) is also expecting a distribution of 6.2%--not sky-high in absolute terms, but unwelcome given its mandate.
Most MFS funds are not planning substantial capital gains distributions in 2019. That represents an improvement over 2018, when a number of funds made sizable payouts. The exceptions are Bronze-rated MFS Massachusetts Investors Growth Stock (MIGFX), which is expecting to pay out 6%-10% of its Sept. 30 NAV, and Silver-rated MFS Massachusetts Investors Trust (MITTX) (5%-7% of NAV).
Two Oakmark funds will be making distributions equal to 7% of their NAVs in mid-December: Oakmark Fund (OAKMX) and Oakmark Equity and Income (OAKBX). The rest of the funds in the lineup will make small or no distributions.
Primecap Odyssey Stock (POSKX), Primecap Odyssey Aggressive Growth (POAGX), and Primecap Odyssey Growth (POGRX) will all be making distributions in the neighborhood of 4%-6% of their September-end NAVs.
T. Rowe Price
The biggest payouts, as a percentage of NAV, in T. Rowe Price's lineup will come from two funds that have recently experienced manager changes: T. Rowe Price New Horizons (PRNHX) and T. Rowe Price Real Estate (TRREX). T. Rowe Price New Horizons will pay out roughly $6 in capital gains (about 10% of today's NAV), whereas T. Rowe Price Real Estate will distribute $3.36 per share, or about 12% of current NAV. T. Rowe Price Science & Technology (PRSCX) will distribute roughly 5% of its current NAV, while T. Rowe Price Health Sciences (PRHSX) will make 6% distribution.
Vanguard funds will be making capital gains distributions in mid- and late December. The Vanguard fund with the largest impending capital gain distribution as a percentage of NAV is Vanguard Mid Cap Growth (VMGRX); it's expecting a 13% distribution. Vanguard Windsor (VWNDX) and Vanguard Windsor II (VWNFX) will distribute 9% and 8% of NAV, respectively. Some of the larger distributions from Vanguard will come from various Primecap-managed funds, all of which are closed to new investors. Closed funds tend to be more vulnerable to making capital gains distributions than open ones, in that it's easier for money to leave than to flow in. Vanguard Capital Opportunity (VHCOX) will distribute 6% of its NAV, while Vanguard Primecap (VPMCX) and Vanguard Primecap Core (VPCCX) anticipate distributions in the 6% range. Vanguard Explorer (VEXPX) will pay out 9% of its NAV in capital gains, while Vanguard Morgan Growth VMRGX is expecting to pay out 8% of NAV.
A previous version of this article misstated the amount of NAV to be distributed by Vanguard Capital Opportunity. It is 6%.
Christine Benz has a position in the following securities mentioned above: HACAX, VPCCX. Find out about Morningstar’s editorial policies.