Executive Summary
As we move through the fourth quarter, this is the time that fund companies start publishing their estimates for end-of-year capital gains distributions – a tax event that can have significant ramifications for investors, yet one for which its remarkably difficult to aggregate together relevant information across a wide range of investment companies.
Until now. Financial advisor (and Chief Investment Officer) Mark Wilson of The Tarbox Group has (re-)launched his Capital Gains Valet (or CapGainsValet for short) service, which pulls together all the reference links for investment company capital gains distribution estimates to a single site location. And the service is made available to advisors and other investors for free (Wilson simply asks for donations to his charity of choice).
And notably, in a year where markets have been relatively flat but many funds have significant embedded capital gains due to the past 6 years of a raging bull market, it becomes especially important to plan in advance for year-end distributions… both for those who might consider selling a recently-purchased fund with a large gain looming, or who may wish to defer buying a large-gain-distributing fund until after the end of the year. Or alternatively, at least focus on the asset location benefits of placing such gains-distributing funds (especially those with large embedded capital gains) inside of a retirement account in the first place!
CapGainsValet – Aggregating Year-End Estimates Of Mutual Fund Capital Gains Distributions
The basic concept of Capital Gains Valet (or CapGainsValet for short) is relatively straightforward – to aggregate together all the information about end-of-year fund distributions into one central location. Born from financial advisor (and Chief Investment Officer) Mark Wilson of The Tarbox Group, and his own frustration in trying to find this information for the firm and its clients, Wilson pulls together all of the reference links to various investment companies’ estimates of their year-end distributions.
To date, CapGainsValet has scanned a whopping 191 investment companies, with almost half having already posted capital gains estimates (which is actually ahead of pace from last year, when only about 35% reported estimates in October, with most of the rest providing estimates in November). And for fund companies that haven’t reported yet, CapGainsValet provides an indication of when the companies reported their estimates from last year (providing at least some guidance about when companies that haven’t reported yet may do so in the coming weeks).
Of course, the caveat is that the information on capital gains estimates is only as good as the fund companies report in the first place. And because companies report so inconsistently, Wilson’s site simply provides links to the fund companies’ own reporting documents, rather than trying to pull in the information directly to a central database. Nonetheless, the easy and straightforward ability to search for fund companies makes it quite simple to find the gains estimate lists of relevant funds.
Advisors can also stay up to date on the latest announcements of estimates by signing up for the CapGainsValet email list. And the service is available for free – Wilson simply requests a voluntary donation to JDRF (the Juvenile Diabetes Research Foundation), a charity in which he has become involved after his own son was diagnosed with type 1 diabetes just before kindergarten.
Asset Location And Big Capital Gains Distributions In A Year Of Flat Markets
Notably, despite a relatively flat year for markets overall, Wilson notes several funds that are “in the doghouse” with looming distributions of 20% to 30% of the funds’ underlying NAVs thanks to the raging bull market in recent years! Funds that were previously “tax efficient” in not distributing their gains are now finding their embedded gains catching up to them.
“Highlights” include a large number of funds from the Columbia fund family (including several of the popular Columbia Acorn Funds with 20%+ distribution estimates), a number of small-cap funds including those from Ridgeworth, ASTON/TAMRO, Eaton Vance, LKCM Aquinas, Northern Multi-Manager, and Wells Fargo. Ironically, even the Eaton Vance Tax-Managed Global Small-Cap Fund has a whopping 30% distribution coming this year, and the FPA U.S. Value fund tops the list with a massive 80%-of-NAV gains distribution (which actually already occurred last month). Also notable on the list is the Deutsche EAFE Equity Index Fund, which is projecting a 30% capital gains distribution despite being an “index fund”, thanks to its significant year-to-date outflows that have trigger net liquidations of appreciated holdings from prior years.
Of course for asset location purposes, ideally mutual fund investments that have the potential for internal fund turnover and significant capital gains are held inside of a retirement account in the first place. But in practice, this is not always possible/feasible.
Thus, to say the least, advisors considering the purchase of any of these funds in a taxable account should be highly cautious about purchasing them between now and when their capital gains distributions occur in the coming weeks, or risk triggering an adverse tax event for clients. In point of fact, clients who bought these funds in the past year or two may even wish to consider selling them in the next few weeks and sitting out the capital gains distribution period, as the magnitude of the realized gain by selling may still be more modest than the even-larger capital gains event that would occur by continuing to hold!
In any event, advisors who at least want to stay on top of potential end-of-year capital gains distribution estimates now have a new central resource to check out and stay up to date. So check out CapGainsValet, and if you like the service, be certain to support as well!
So what do you think? Does CapGainsValet sound like a useful service for you? What other information do you wish it included to make end-of-year tax planning easier?
Been using it for the past couple years. I love it.
Efficiencies available in post payout data, too: Wish Custodians or other Rebal tools would merge “uncontrollable” fund distribution breakdowns + realized gains/losses + advisor stored carry loss forwards & other anticipated taxable events/data in order to more optimally manage tax budgets. For private clients, this is arguably one of the great service differentiators and opportunities for smart decision-support software to empower advisors throughout the tax year. Best, Michael
Hi Michael,
TradeWarrior (a rebal tool) does have the ability to take all of the tax info you listed above into consideration, and can help advisors easily navigate cap gains distribution avoidance along with other trading/rebalancing scenario’s. Feel free to give us a call at 801-295-9192 or schedule a demo with us on our site at http://www.tradewarriorsoftware.com if you want to take a look at it with us.
Great Find!. Thanks Michael