Capital Gains Roundup: 2020 Edition
As the year winds down, growth-fund investors are most likely to get socked with tax bills.
Own an actively managed growth stock fund in a taxable account? You may well receive a tax bill, based on the latest round of mutual fund capital gain distribution estimates.
Several growth funds are poised to pay out double-digit percentages of their net asset values, and many more are making payouts in the high single digits as a percentage of NAV. Yet again, the convergence of redemptions from investors who are increasingly swapping into exchange-traded funds and other types of passive products, plus strong performance in the underlying holdings, has prompted significant selling of appreciated assets at many growth mutual funds. Those sales translate into capital gains distributions, which in turn are taxable to shareholders who own the funds in taxable accounts. Fund companies have begun making estimates of their distributions available on their websites, and most will make their actual distributions in early to mid-December.
Does It Matter?
Before looking at the distribution estimates that we have thus far, let's first review for whom these distributions matter. If all of your holdings are in tax-sheltered accounts and you’re reinvesting the distributions, capital gains distributions are a nonevent for you. If your money is in a tax-deferred account, you'll owe taxes only when you begin selling your holdings. Qualified withdrawals from Roth IRAs aren't taxed at all.
But 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.
At the same time, 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. You’ve essentially paid part of the tax bill that would otherwise be due. 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.) Note that I’ve aimed to highlight larger, more prominent funds in the descriptions below. I have generally downplayed inherently tax-inefficient funds, such as convertibles or balanced funds, because tax efficiency isn’t typically viewed as a key benefit of such products.
AB (AllianceBernstein) Funds
A handful of AB funds are on track to make sizable capital gains distributions. Leading that list is the AB Discovery Growth (CHCLX), which has a Morningstar Analyst Rating of Bronze. It expects to distribute about 16% of its September-end NAV in early December. In addition, Neutral-rated AB Small Cap Growth (QUASX) is expecting to distribute about 11% of NAV. Most other AB equity funds that are making distributions will distribute 5% or less of their NAVs.
A handful of American Century funds are making meaningful capital gains distributions in December 2020. American Century Disciplined Growth (ADSIX) will make the largest distribution, as a percentage of NAV, at the firm: It expects to pay out about 15% of its current NAV. American Century Disciplined Core Value (BIGRX), which rates Neutral currently, anticipates a distribution of largely long-term capital gains amounting to roughly 13% of its current NAV. American Century Equity Growth (BEQAX) estimates that it will make a distribution of 9% of its NAV, while American Century Focused Global Growth (TWGGX) anticipates a distribution of roughly 11% of its NAV. The Neutral-rated American Century Heritage (ATHAX) is anticipating a payout of 12% of its current NAV.
Capital gains distributions look to be muted for most American Funds in 2020. Of the funds making distributions later this year, most are in the very low single digits. American Funds Growth Fund of America (AGTHX) expects to pay out long-term capital gains equal to 4%-6% of its mid-September NAV. American Funds New Perspective (ANWPX) and American Funds Growth Portfolio (GWPAX) will pay out 3%-5% of their NAVs in long-term capital gains.
AMG Yacktman (YACKX) and AMG Yacktman Focused (YAFFX), both Silver-rated, made meaningful distributions in 2018 and 2019 and are on track to do so this year as well. AMG Yacktman will distribute about 9%-11% of its September-end NAV, while AMG Yacktman Focused will make a 10%-13% payout. AMG TimesSquare Small Cap Growth (TSCIX) is estimating a payout in the 13%-16% range; it also made a big payout last year. Meanwhile, sibling AMG TimesSquare Mid Cap Growth (TQMIX) anticipates a 13%-15% payout. AMG Managers Montag & Caldwell Growth (MCGFX), currently rated Bronze, is also anticipating a sizable distribution of about 13%-16% of its September-end NAV. One smaller fund making a whopper of a distribution is AMG Managers Fairpointe Mid Cap (ABIZX), which is estimating a payout that amounts to 27%-33% of its NAV.
Capital gains distributions from Ariel funds will be fairly modest this year. Neutral-rated Ariel Appreciation (CAAPX) will distribute about 9% of its current NAV on Nov. 19, while Bronze-rated Ariel Fund (ARGFX) will pay out roughly 5% of its NAV at the same time.
A handful of BlackRock funds are making distributions in excess of 5% of their NAVs. The Neutral-rated BlackRock Global Allocation (MDLOX) will distribute between 5% and 6% of its NAV in mid-December. That fund has seen steady outflows as well as manager changes in recent years. Silver-rated BlackRock Technology Opportunities (BGSAX) will distribute 5%-6% of NAV, and BlackRock Health Sciences Opportunities (SHSAX) will distribute between 4% and 5% of NAV.
Columbia Acorn funds have made some large capital gains distributions in recent years, but they’re down significantly for 2020. Columbia Acorn (LACAX) will pay out 7%-9% of its September-end NAV, while Columbia Acorn International (LAIAX) will make a 7%-8% payout. Both rate Neutral currently.
Other funds in the family, especially growth-oriented funds, are expecting to make bigger payouts. Neutral-rated Columbia Large Cap Growth (LEGAX) will pay out 12%-13% of its NAV, while sibling Columbia Mid Cap Growth (CBSAX) will distribute 12%-15%. Neutral-rated Columbia Select Large Cap Growth (ELGAX) is anticipating a payout of 14%-16%; it also made a big distribution last year. Bronze-rated Columbia Contrarian Core (LCCAX) will pay out 7%-8% of its NAV. Columbia Small Cap Growth (CGOAX) is anticipating a distribution in the 7%-9% range. Columbia Disciplined Growth (RDLAX) is anticipating a distribution of 10%-12% of NAV.
Additionally, Bronze-rated Columbia Seligman Communications & Information (SLMCX) and Columbia Seligman Global Technology (SHGTX) will make distributions; payouts are estimated to be in the range of 10%-12% of NAV for both. Both funds made big distributions in 2019 as well. Finally, Bronze-rated Columbia Mid Cap Index (NTIAX) is anticipating what amounts to a sizable distribution for an index fund: 4%-6% of its NAV.
As is typical of many shops, Fidelity’s biggest distributions are generally concentrated in its growth-leaning funds. Silver-rated Fidelity Growth Company (FDGRX) will distribute 6% of its September-end NAV, as will the Silver-rated Fidelity Contrafund (FCNTX). The former has posted a stunning year-to-date gain of more than 50%, compounding a string of superb returns over the past decade. Fidelity Growth Company is closed to new investors, which is generally a positive for shareholders but can contribute to capital gains distributions when shareholders redeem. That’s because money can more readily flow out than it can flow in.
In addition, large-growth fund Fidelity Focused Stock (FTQGX) will distribute 10% of its NAV, while Bronze-rated Fidelity New Millennium (FMILX) and Fidelity Capital Appreciation (FDCAX), rated Neutral, will pay out 7% of NAV apiece. Fidelity Growth Strategies (FDEGX) will make a 6% distribution, and Bronze-rated Fidelity Mid-Cap Stock (FMCSX) will pay out 5% of its NAV. Bronze-rated Fidelity Growth Discovery (FDSVX) will make a 5% payout as well.
A handful of the firm’s sector funds will also make distributions of more than 5% of their NAVs. They include Fidelity Select Biotechnology (FBIOX) (a 14%-of-NAV distribution), Fidelity Select Technology (FSPTX) (16%), Fidelity Select Computers (FDCPX) (6%), Gold-rated Fidelity Select Health Care (FSPHX) (7%), and Fidelity Select Pharmaceuticals (FPHAX) (5%). Two region-specific funds will also make distributions: Bronze-rated Fidelity Emerging Asia (FSEAX) will make a payout equivalent to 17% of its September-end NAV, and Fidelity China Region (FHKCX), rated Neutral, will make a 5% distribution. Fidelity Worldwide (FWWFX) will distribute 7% of its NAV.
Among sizable funds under the Franklin Templeton umbrella, Franklin Growth (FKGRX) anticipates a distribution of roughly 8% of its September-end NAV. Franklin Small-Mid Cap Growth (FRSGX) and Franklin Small Cap Growth (FSGRX) are anticipating distributions of roughly 9% of their September-end NAVs. Franklin Biotechnology Discovery (FBDIX) will make a distribution of 15% of its NAV; it also made a sizable distribution in 2019.
Harbor Funds will make capital gains distributions on Dec. 17. The largest distributions will come from Harbor Mid Cap Growth (HIMGX), ranging from 15% to 16% of NAV, depending on the share class. That fund also made a big distribution in 2019. Gold-rated Harbor Capital Appreciation (HACAX), the firm's largest fund, will also distribute 11%-12% of its NAV; it made a meaningful capital gains distribution last year as well.
Funds from this shop made some of the most sizable capital gains distributions in 2019. After Invesco acquired OppenheimerFunds last year, it made a number of management changes, which in turn led the new managers to sell positions. While the capital gains distributions aren’t as large or widespread as they were last year, several funds, both domestic and international equity, are making big payouts. Some of the largest distributions are coming at the firm’s international offerings. Bronze-rated Invesco Oppenheimer International Growth (OIGAX) estimates a payout equivalent to 15% of its September-end NAV. Invesco Global Opportunities (OPGIX), rated Neutral, is expecting to distribute 10% of its NAV, while Invesco Global Growth (AGGAX) anticipates payout equivalent to 9% of NAV. Invesco Asia Pacific Growth (ASIAX) is targeting a payout of 7% of NAV.
On the domestic-equity side, Invesco Small Cap Growth (GTSAX) and sibling Invesco Discovery (OPOCX) expect to pay out about 10%-11% of their NAVs in capital gains. Invesco American Franchise (VAFAX), a Neutral-rated large-growth fund, estimates a distribution equal to 8% of its NAV. Meanwhile, Neutral-rated Invesco Active Allocation (OAAAX) is poised to distribute about 12% of its September-end NAV, while Invesco Select Risk: High Growth (OAAIX) expects to pay out a whopping 18% of NAV. (To be fair, multi-asset funds like this one are typically a better fit within a tax-sheltered account to begin with, because they own assets that are taxed as ordinary income.)
A handful of Janus Henderson funds are planning to distribute capital gains in December. Neutral-rated Janus Henderson Forty (JDCAX) will pay out nearly 6% of its NAV, and Janus Henderson Global Life Sciences (JFNAX) will make a 7% payout. Meanwhile, Bronze-rated Janus Henderson Enterprise (JDMAX) will distribute about 6% of its NAV, while Janus Henderson Global Technology and Innovation (JATAX), also rated Bronze, will distribute about 7% of its September NAV.
A host of sizable funds from the JP Morgan complex are on track to make meaningful capital gains distributions this year. The largest estimated distribution--amounting to 21% of NAV--will come from JPMorgan US Large Cap Core Plus (JLCAX). Two of the other larger distributions in the shop--amounting to 11% and 12%, respectively--will come from JPMorgan Mid Cap Equity (JCMAX) and JPMorgan Mid Cap Growth (OSGIX). Not to be left out, Gold-rated JPMorgan Mid Cap Value (JAMCX) will also make an 8% distribution. JPMorgan Small Cap Growth (PGSGX) will distribute 8% of its NAV. Neutral-rated JPMorgan Growth Advantage (VHIAX) anticipates a payout of 11% of its NAV, after making a decent-size payout last year. JPMorgan Intrepid Growth (JIGAX), also rated Neutral, has been a serial distributor as well: It’s anticipating an 8% distribution this December and paid out capital gains in 2018 and 2019, too. JPMorgan Investor Growth & Income (ONGIX), rated Neutral, and JPMorgan Investor Growth (ONGAX) will both distribute 6% of their NAVs. JPMorgan Tax Aware Equity (JPEAX) is estimating a 9% distribution, on the heels of a roughly 6% distribution last year. That tax inefficiency is disappointing given the fund’s mandate.
Bronze-rated MFS New Discovery (MNDAX) will distribute 8%-15% of its NAV in capital gains in early December; the distribution will consist of short- and long-term gains. MFS International Intrinsic Value (MGIAX), also rated Bronze, will pay out 4%-7% of its NAV. The Silver-rated MFS Massachusetts Investors Growth Stock (MIGFX) will pay out 5%-8% of its NAV. MFS Blended Research Core Equity (MUEAX), rated Bronze, will distribute 5%-7% of NAV in capital gains, while Bronze-rated MFS Research (MFRFX) will distribute 4%-7% of NAV.
Oakmark funds will make minimal capital gains distributions this December. That’s a relief given that many of the firm’s funds are experiencing a subpar year on the performance front. Oakmark Equity and Income (OAKBX) anticipates a small distribution amounting to 3% of NAV. The rest of the funds in the lineup will not distribute capital gains.
Primecap Odyssey funds have generally had a subpar year--at least relative to their category peers--so their capital gains distributions are apt to be particularly unwelcome. Primecap Odyssey Growth (POGRX) will make the largest distribution as a percentage of its NAV--11%. Primecap Odyssey Aggressive Growth (POAGX) expects to make an 8% distribution (as a percentage of current NAV), while Primecap Odyssey Stock (POSKX) anticipates a distribution of roughly 6% of its current NAV. All three funds are Gold-rated.
T. Rowe Price
A host of T. Rowe Price funds are making distributions that are a meaningful percentage of their NAVs. Topping the list is the Neutral-rated T. Rowe Price Real Estate (TRREX), which recently experienced a management change; that fund is anticipating a payout of roughly 27% of NAV. (It also made a sizable payout last year.) Of course, real estate funds should never be considered a good fit for taxable accounts to begin with, because their income distributions are typically taxed at ordinary tax rates. T. Rowe Price New America Growth (PRWAX) is also poised to make a decent-size distribution amounting to 13% of its current NAV; those gains are both short- and long-term. Anticipating distributions of roughly 11% of NAV are T. Rowe Price Science & Technology (PRSCX), Silver-rated T. Rowe Price New Horizons (PRNHX) (short- and long-term gains here, too), and Bronze-rated T. Rowe Price Spectrum Growth (PRSGX). T. Rowe Price Financial Services (PRISX) expects to distribute 9% of its current NAV.
Vanguard funds will be making capital gains distributions in mid- and late December. Whereas many funds making sizable distributions in 2020 lean toward the growth side of the Morningstar Style Box, Vanguard’s biggest distribution, as a percentage of NAV, will come from the Bronze-rated Vanguard Selected Value (VASVX). Vanguard estimates that the fund will distribute roughly 13% of its NAV later this year. That distribution likely owes, at least in part, to the change in the fund’s subadvisor in late 2019. The fund, like most value funds, is on track for a loss thus far this year. Bronze-rated Vanguard Windsor II (VWNAX), which also experienced some subadvisory changes in late 2019, is on track to distribute 7% of its NAV, as is Bronze-rated Vanguard Windsor (VWNEX). Gold-rated Vanguard Wellington (VWENX) and Vanguard Growth & Income (VGIAX), rated Silver, will distribute 5% of NAV apiece.
Most of the other distributions in the firm come from growth-leaning funds. As was the case in 2019, the Gold-rated funds managed by Primecap will make distributions. Vanguard Capital Opportunity (VHCAX) will distribute 9% of its NAV, as will Vanguard Primecap (VPMAX). Vanguard Primecap Core (VPCCX) anticipates a distribution in the 7% range. Bronze-rated Vanguard Mid Cap Growth (VMGRX), which also made a sizable distribution last year, will make a distribution equal to 7% of NAV. Vanguard Explorer (VEXRX), also rated Bronze, will follow up its 2019 distribution with another one in 2020--an estimated 7% of NAV. Vanguard Diversified Equity (VDEQX) will distribute 5% of its NAV, as will Silver-rated Vanguard Health Care (VGHAX).
Note that some of the larger distributions from Vanguard will come from funds that are closed to new investors--for example, the Primecap-managed funds. 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.
One somewhat surprising distribution will come from the Gold-rated Vanguard Institutional Total Stock Market Index (VITNX), which will make a payout of 8% of its NAV. Morningstar’s global director of ETF analysis Ben Johnson points out that the fund had sizable outflows this year, which likely precipitated the distribution. However, it’s worth noting that, as an institutional fund, it’s likely to be held nearly entirely by investors in tax-sheltered accounts.
Christine Benz has a position in the following securities mentioned above: HACAX, VPCCX. Find out about Morningstar’s editorial policies.