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.)
AllianceBernstein 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 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.
AMG Funds 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.
Ariel 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 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.
BlackRock 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 Threadneedle 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.
Fidelity 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.
Franklin Templeton 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 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.
Invesco Funds 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.
Janus Henderson 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.
JPMorgan 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.
MFS 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).
Oakmark 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 Oydssey 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 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%.