Get ready for some serious tax hits in your equity mutual fund holdings for this year, with many funds making capital-gains distributions next month.
“Capital-gains season approaches for mutual fund investors,” Morningstar strategist Christopher Franz and analyst Anthony Thorn wrote in a report last week.
“Once again, it will be a good news/bad news period. Most actively managed stock funds have enjoyed strong absolute gains in 2021.
“But that means many of them estimate that their year-end distributions to fundholders will range in percentages of net asset value from the high single digits to double digits.
“The taxes owed on those payouts could be the fly in the ointment of an otherwise satisfactory year for investors who hold their funds in taxable accounts.”
Morningstar has compiled estimates made by numerous funds of their capital gains distribution rate.
That includes 9% of net asset value for Fidelity Growth (FDGRX) – Get Fidelity Growth Company Report, 8% for Fidelity Contrafund (FCNTX) – Get Fidelity Contrafund Report, 7% to 10% for American Funds Growth of America (AGTHX) – Get American Funds Gr Fnd of Amer A Report and 5% to 9% for American Funds Fundamental Investors (ANCFX) – Get American Funds Fundamentl Invs A Report.
“The confluence of another year of robust performance … and the ongoing trend of investors swapping out traditional active vehicles for … passive vehicles has led many managers to realize gains to rebalance their portfolios and meet redemptions,” Franz and Thorn said.
They note that the average U.S. equity fund rose 21.1%, and the typical non-U.S. strategy gained 9.6% year to date as of October.
Fund companies have begun publishing distribution estimates on their websites, and most will distribute the payouts in early to mid-December, Franz and Thorn said.
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