11
Morningstar FundInvestor
November
2013
It’s that time of year again, when mutual funds begin
to announce and then distribute capital gains to fund-
holders. Vanguard says it will post its first capital
gains estimates on Nov.
12
. Here are some funds that
may make hefty distributions.
Royce Low-Priced Stock
RYLPX
At first glance, this small-growth fund doesn’t appear
primed to make a big distribution. It has struggled
mightily since the start of
2011
, registering a slight
loss from then through Oct.
18
,
2013
, while its typical
peer has gained an annualized
14%
. The fund also
trades at a modest pace; portfolio turnover has aver-
aged
23%
annually over the past five years.
But Royce announced in mid-September
2013
that
the fund is estimated to make a distribution equal to
16
.
6%
of its net asset value to those who own the
fund in a taxable account as of Dec.
4
. Investors have
pulled a net $
2
.
5
billion from the fund since the start
of
2011
, which means its realized gains are spread
over a far smaller asset base ($
1
.
8
billion).
Janus Forty
JACTX
,
Janus Venture
JAVTX
Manager changes can lead to big distributions of
gains as new skippers reposition portfolios to their
liking, and that appears to be the case at both
of these funds. Douglas Rao took the helm of Janus
Forty at the end of May
2013
from the departing
Ron Sachs. While he only jettisoned three names
from the compact portfolio by the end of June, he
added eight new holdings and thus needed to adjust
the weightings of a number of others. Combine
those changes with the fund’s gains of more than
23%
in both
2012
and in
2013
through Nov.
1
and
with $
1
billion in net outflows in the first three quar-
ters of
2013
, and it’s not surprising that the fund
was estimated on Sept.
16
to make a capital gains
distribution equal to
16
.
3%
of its net asset value
to those who own the fund in a taxable account as
of Dec.
16
.
Janus Venture also got a new manager in May, as
Jonathan Coleman took over when Chad Meade
and Brian Schaub left the firm after a very successful
tenure. Outflows have been fairly modest; $
440
million was pulled out in July and August after their
departure (flows stabilized in September). But the
fund has been on a tear, gaining
17%
in
2012
and
another
31%
in
2013
through Nov.
1
. Also, Coleman
sold six stocks and added
18
to the fund during late
May and June, leading to numerous position adjust-
ments. The fund is estimated to distribute gains
equal to
13
.
6%
of its net asset value to fundholders
in taxable accounts as of Dec.
16
.
Longleaf Partners Small-Cap
LLSCX
This closed fund plans to distribute $
4
.
91
per share in
capital gains, or about
14%
of net asset value, on
Nov.
7
. Longleaf has said small caps look pricey, and
it’s finding more to sell than buy. Hence the payout.
Meridian Growth
MERDX
The team that left
Janus Triton
JATTX
(as well as
the aforementioned Janus Venture) took over this
fund in September. The managers’ last Janus Triton
portfolio had
12
names in common with Meridian
Growth. The fund is estimated to distribute roughly
25%
of its net asset value to those who own the
fund as of Nov.
12
,
2013
. We are excited about the
new team at Meridian, but taxable investors may
want to wait to buy it.
Calamos Growth
CVGRX
This fund expects a huge tax bill of about
25%
. Inves-
tors pulled a net $
2
.
3
billion from the fund in the
first nine months of
2013
(
40%
of its total assets at
the start of the year), and the fund has gained
25%
for the year through Nov.
1
. It made capital gains dis-
tributions equal to
5%
and
8%
of its net asset value
in
2011
and
2012
, respectively. Continued outflows in
2014
could spell more tax bills.
œ
Contact Greg Carlson at
Caution: Tax Bill Ahead
Red Flags
|
Greg Carlson
What is Red Flags?
Red Flags is designed to alert
you to funds’ hidden risks. Such
risks can take many forms,
including asset bloat, the depar-
ture of a solid manager, or a
focus on an overhyped asset
class. Not every fund featured in
Red Flags is a sell, and in fact,
some are good long-term hold-
ings. But investors should be
prepared for a potentially bum-
pier ride in the near future.
