MFOHome About Commentary Discussions Funds The Best Resources Support Us!

Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

Sign In Register

Categories

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

Any ideas for estimating capital gain distributions this early in the year?

wsanderswsanders
edited August 5 in Fund Discussions
Does anyone have a method for estimating fund capital gain distributions this
early in the year? I need to keep my income below a certain level for 2025
and have a few mutual funds that sometimes throw a big surprise at
the ends of the year. Normally this is not a problem :-)

What drives distributions? I figure it would be some function of turnover, NAV,
fund inflows and outflows, and of course fund policy.
Any ideas? Also where I might be able to see more timely
turnover and inflow outflow data - funds and Morningstar seems to report it only at
year end.

An an example, I looked up 5 years of data for RYPNX (Royce Small Cap
Opportunity) and plotted turnover vs change # of shares vs the CG distribution for 5 years.
[I tried to post an image, didn't work.]
Not much of a pattern, they have reported 35% turnover for the past three years.
The 2021 distribution was a whopper, about 25% of NAV, turnover was 69%.
But the 2020 distribution was 0 even though turnover was 53%. Q1 2020 was the pandemic big correction
and then the fund had a big spike in Q2-3 2021, even though the asset unders management was
still nearly double a YE 21 vs 20.

Maybe I should calculate the upside volatility of my funds and pay attention to that.
Or I could use volume of a similar ETF as a proxy. So far, this year, RYPNX has been meh,
so I don't expect a big distribution for 2025.

The cool part if that Microsoft Copilot seems to want to work with me on this:
Q: "What us a useful model for predicting mutual fund capital gain distributions in advance?"
A: [edited]: "Would you like help building a predictive model using historical fund data?
I can assist with data sourcing, feature selection, and model development."

Comments

  • yogibearbullyogibearbull
    edited August 6
    I don't think it can be done so early. As you have noted, there is no pattern seen from past history. Many funds with high % of retirement a/c don't manage the fund at all for CGs - Fido, etc. As the funds are allowed to close books for the year at October-end, November is the earliest this info is available or may be modelled.

    If a fund has high UNREALIZED gain and/or high turnover, it's a potential candidate for high REALIZED CGs. Market down years when there can be lot of redemptions can lead to high realized CGs.

    One thing is certain - ETFs have no/low realized CGs.
  • wsanderswsanders
    edited August 6
    Indeed. I've turned to ETFs for all new investments for the past few years. My basis in these "surprise" mutual funds goes back decades. RYPNX has alway been right on the edge of my personal "efficient frontier" (return vs volatility) map, so I've always considered the tax inefficiency to be a sign that the fund managers are doing their job:-)

    Morningstar published a "Potential Capital Gains Exposure" figure but it ranges from zero to low 70 percent even for SP500 index funds (and minus 3% for SPY??). It's 26% for RYPNX, but much higher for funds with lower turnovers, which is sort of consistent, but my guess is that these stats are all over the map since the market's been seeing record highs since the start of the year.

    It will be fun to see if Copilot or ChatGPT have any insights. They aren't afraid to tell you your numbers are meaningless. But they are very good at making plots, you just paste in some CSV-format data and boom you get a PNG image of your graph. Copilot even posts a code fragment so I can regenerate the graph myself with Matlib.
  • sfnative
    Vanguard is the only fund company I know of that posts running totals of capital gains throughout the year. The suite of Primecap funds, for example, look like they have already realized double-digit percentages of gains so far this year, and it seems those will get a lot bigger given outsized July redemptions (almost $4 billion worth in the case of VPMCX, according to M*).
Sign In or Register to comment.