2022 Year-End Distributions

[marko]

In general, it’s not unusual for active equity funds to pay out cap gains distributions in the first year of a bear market due to investors dumping their equity funds.

Wait! I thought cap gains came from fund managers selling gained holdings to rebalance the fund or shifting fund components. More of a strategic move than a reactionary one

What is the connection between investors dumping funds?

 

[scrabbler1]

I remember back in 2000 when we had the double-whammy of large year-end cap gain distributions and declining fund values (NAVs). But 3 years later, in 2003, the opposite happened when the markets recovered. The stock fund values rose and there were no cap gain distributions. This was due to cap losses carried forward from prior years, enough to offset realized cap gains in the funds.

I remember asking a Fido rep if there was a way I could find these cap losses carried forward from the prior year. They were buried in the fund's last annual (or semi-annual?) report, often in a footnote. But if the report can be found in a pdf format, a simple search for "carry forward" or similar term will take you right to the appropriate footnote.

It's not always clear how big a carryover loss needs to be in order to fully cancel out a cap gain distribution. But it's good to know if one of these losses are in the fund at distribution time.

 

[marko]

I remember back in 2000 when we had the double-whammy of large year-end cap gain distributions and declining fund values (NAVs). But 3 years later, in 2003, the opposite happened when the markets recovered. The stock fund values rose and there were no cap gain distributions.

My CGs were fairly normal in 2007, down slightly in 2008 and near zero in 2009. It wasn’t until 2013 that they fully returned to normal levels.

 

[audreyh1]

Wait! I thought cap gains came from fund managers selling gained holdings to rebalance the fund or shifting fund components. More of a strategic move than a reactionary one

What is the connection between investors dumping funds?

When investors sell a (open-end) mutual fund, fund managers have to sell some holdings to cover the redemption. This becomes an issue when sellers greatly outnumber buyers.

I remember asking a Fido rep if there was a way I could find these cap losses carried forward from the prior year. They were buried in the fund's last annual (or semi-annual?) report, often in a footnote. But if the report can be found in a pdf format, a simple search for "carry forward" or similar term will take you right to the appropriate footnote.

Morningstar gives the potential capital gains exposure for many mutual funds in their tax efficiency info under the Price tab. It’s very high for many equity funds due to the super long bear market.

 

[scrabbler1]

My CGs were fairly normal in 2007, down slightly in 2008 and near zero in 2009. It wasn’t until 2013 that they fully returned to normal levels.

You made me curious about the 2008 downturn. In the (same) actively managed stock fund I was in at the time, I had a cap gain distribution in early 2008. The next one was in 2015!

 

[all4j]

When investors sell a (open-end) mutual fund, fund managers have to sell some holdings to cover the redemption. This becomes an issue when sellers greatly outnumber buyers.


Morningstar gives the potential capital gains exposure for many mutual funds in their tax efficiency info under the Price tab. It’s very high for many equity funds due to the super long bear market.

Perhaps this is nitpicking, but I've seen this misunderstood too often on this board. I would agree that it is technically possible that a fund manager would "have" to sell to cover a redemption. But, albeit without data to back this up, I'd say it is indeed a rarity. (Actually, I hear it more often about bond funds where it may be even more rare). Even when there are more sellers than buyers, there are cash cushions etc.

And a further word of caution on the Morningstar data....just remember this is at best stale data. Looking at the company reports is a bit more work, but sheds more light. You can see carryforward amounts, realized & unrealized gains/losses, look at turnover rates etc. Helps to see the trend & not just a snapshot of stale data (which admittedly is better than nothing & easier to obtain).

 

[audreyh1]

What? You are saying that if way more people are selling an open-end mutual fund than buying it, the fund manager does not have to sell some of the holdings to cover the redemptions? Under normal circumstances it can be covered by the regular cash flow, but during bear markets when investors are often dumping active mutual funds and some positions have to be sold. Mutual funds tend to keep very small cash cushions as their mission is to be fully invested and a drag against their chosen benchmark.

Are you saying investors haven’t actually been heavily selling mutual funds this year? Mutual fund outflows have been pretty heavy. https://www.yardeni.com/pub/ecoindiciwk.pdf

 

[all4j]

What? You are saying that if way more people are selling an open-end mutual fund than buying it, the fund manager does not have to sell some of the holdings to cover the redemptions? Under normal circumstances it can be covered by the regular cash flow, but during bear markets when investors are often dumping active mutual funds and some positions have to be sold. Mutual funds tend to keep very small cash cushions as their mission is to be fully invested and a drag against their chosen benchmark.

Are you saying investors haven’t actually been heavily selling mutual funds this year? Mutual fund outflows have been pretty heavy. https://www.yardeni.com/pub/ecoindiciwk.pdf

Well, original post said 'when an investor sells....the fund managers have to'; in your reply you added some subjectivity. I reacted because I read posts from some who think every redemption causes a manager to sell -- see term 'forced redemption' -- & at a loss. Whether or not the qualifiers I italicized are correct...I'll leave that characterization to others. I looked at the charts to find the ytd & it was only the last 13 weeks? So, missing some data there. And funds aren't all the same... the charts don't break out flows from active vs index, etc

Part of my point is that an active fund manager that is worth investing with will have some visibility into what is coming. There can be an orderly drawdown based on a variety of factors. They can navigate what to sell when needed in order to anticipate a down turn. I suppose there are also some that say the fund manager sees a rosy market ahead, but way more sellers than buyers disagree causing a run on the bank scenario. Could happen -- I just think it rarer.

 

[TheWizard]

Preliminary capital gains estimates - Nov 15, 2022
Final estimated year-end distributions - Dec 9, 2022

Link to Vanguard's tax calendar:
https://advisors.vanguard.com/tax-center/tax-season-calendar/current-year

My third quarter Vanguard statement for my taxable account projects what my dividends for the entire year will be.
I only hold index funds, so I expect no CGDs.

This projection will be good enough for me to manage my AGI with a properly sized Roth conversion, to avoid getting into the next higher IRMAA tier in 2024...

 

[MarieIG]

I kicked another mutual fund (held outside of IRAs) to the curb earlier this year. Because I had held it a long time, it did have long term capital gains associated with the sale. I did call up Franklin Templeton where it was held and got the cost basis, so that I was able to estimate the gains, and tax loss harvested from a dog in my taxable account. Now, I did look at its ten year performance compared to its peers (along with its management fee) and, in addition to its history of assaulting me with capital gains, its performance was poor and it needed to go . . .

I have two, less than impressive, inherited mutual funds in a taxable account, but will not be bothering with them this year.

IIRC, my Vanguard Healthcare Fund has generated the most capital gains thus far this year, but it's hanging out in IRA land . . .

 

[MarieIG]

I kicked another mutual fund (held outside of IRAs) to the curb earlier this year. Because I had held it a long time, it did have long term capital gains associated with the sale. I did call up Franklin Templeton where it was held and got the cost basis, so that I was able to estimate the gains, and tax loss harvested from a dog in my taxable account. Now, I did look at its ten year performance compared to its peers (along with its management fee) and, in addition to its history of assaulting me with capital gains, its performance was poor and it needed to go . . .

I have two, less than impressive, inherited mutual funds in a taxable account, but will not be bothering with them this year.

IIRC, my Vanguard Healthcare Fund has generated the most capital gains thus far this year, but it's hanging out in IRA land . . .

I watched a youtube video which explained that you can do a search for estimated capital gains of fund families.

One of the estimates is circa 14% and the other circa 10%

 

[TheWizard]

I watched a youtube video which explained that you can do a search for estimated capital gains of fund families.

One of the estimates is circa 14% and the other circa 10%

Are you talking REALIZED CGs which will need to be distributed to find holders?
Or UNREALIZED CGs, which will not?

 

[audreyh1]

I assume she had found the published estimated 2022 CG distributions for those funds in which means they have been realized.

 

[audreyh1]

Hot dang! The bugaboo fund that has terrorized me with outsized capital gains for the last several years - looks like zippo, nada this year! Hope this holds up with any revisions or it’s tiny. Knock on wood!

 

[MarieIG]

I assume she had found the published estimated 2022 CG distributions for those funds in which means they have been realized.

Yes, that is correct.

 

[scrabbler1]

BNY-Mellon (formerly Dreyfus) posted their year-end distribution estimates.

https://im.bnymellon.com/us/en/individual/funds/lt.jsp#year-end-distributions

 

[nico08]

I am trying to estimate my dividends and capital gains for 2022. I looked at the current CG Distribution status of VIMAX, a Vanguard fund. I went to the fund's profile page and scrolled down to distributions.

The realized gain, as of 9/30/22, is -$25.92. Does this mean that I will have $25.92 capital loss per VIMAX share for 2022?

I am a little confused by how large the number (25.92) is and the fact that the number is negative.

Thank you for your insight.

https://investor.vanguard.com/investment-products/mutual-funds/profile/vimax#distributions

 

[audreyh1]

No, funds can’t distribute capital losses, they apply them against future capital gains.

They have a link below that distribution info that explains in more detail.

 

[nico08]

No, funds can’t distribute capital losses, they apply them against future capital gains.

They have a link below that distribution info that explains in more detail.

Thank you audreyh1.

 

[gayl]

Has anyone found Schwabs?

 

[Go-NoGo]

Vanguard estimates for year end CG and distributions are up:
https://advisors.vanguard.com/insights/article/preliminarycapitalgainsestimates

 

[Marc]

Is it possible to find year end estimates for ETFs? Specifically QQQ. I know there will not be any CG but concerned about dividends so I don't go over IRMAA.

thanks,

Marc

 

[audreyh1]

From what I see many companies do publish estimated dividend distributions from ETFs. The information is usually in the same location as their mutual fund information is published.

 

[Amethyst]

I find it odd that VG lists estimated gains, but not dividends (e.g. for VTSAX), which are important for estimating taxes.

Vanguard estimates for year end CG and distributions are up:
https://advisors.vanguard.com/insights/article/preliminarycapitalgainsestimates

 

[SecondCor521]

I find it odd that VG lists estimated gains, but not dividends (e.g. for VTSAX), which are important for estimating taxes.

I think they're going to do that separately and soon. See the other VG links in this thread - one of them points to a calendar with dates going into early/mid December.