148 / 772
2
look at the funds with outflows and big potential
capital gains exposures.
The Trouble With Outflows
It isn’t pretty. A fund underperforms, leading investors
to bail, and those who stick around see their tax bills
rise even as they are disappointed by performance.
The Selected American example is just such a case. In
fact, it may have more distributions to make. Selected
American and Davis New York Venture both saw
about
20%
of assets go out the past
12
months, and
they have potential capital gains exposures of
52%
and
48%
, respectively. Both funds have Morningstar
Analyst Ratings of Bronze, so obviously we expect
them to rebound, but it’s worth knowing the price of
that bet.
The situation is worse for
Columbia Acorn
ACRNX
,
where
30%
of assets have left in the past
12
months.
The fund has about
54%
potential capital gains
exposure. What makes things worse, though, is that
the fund invests in small- and mid-cap names, which
may suffer from depressed share prices because
the fund owns so many of them. Thus, you have the
potential for a double hit to returns and taxes. This is
part of the reason we lowered the fund’s Analyst
Rating to Neutral from Bronze, although Columbia
Acorn does have some good analysts and a sound
strategy. The fund distributed
15%
of net asset value
last year.
Fidelity Growth Company
FDGRX
is an unexpected
name on this list. Performance has been great under
Steve Wymer, so it’s no surprise that the fund has
a big potential capital gains exposure of
52%
. But it is
surprising that the fund has seen redemptions of
about
14%
of
AUM
during the past
12
months. Fidelity
has reported in the past that some of the money
coming out of big funds like this is not redemptions
but actually conversions to collective investment
trusts.
CIT
s are lower-cost, less transparent versions
of mutual funds that some
401
(k)s now prefer. We
haven’t heard how much of those redemptions are
actually conversions, so the true level of redemptions
is a little unclear.
Fidelity Low-Priced Stock
FLPSX
is in a similar situ-
ation, though recent performance has been more
middling than brilliant. The fund is seeing about
12%
of
AUM
leave. The fact that the fund only paid out
about
4%
of
AUM
may mean that much of that money
is
CIT
conversions and that they don’t require selling
the way a normal redemption would.
Dreyfus
Appreciation
DGAGX
has single-digit turnover, so
the end is not nigh. Yet it does have about
12%
in
redemptions during the past
12
months and a
52%
Tax Bills on the Rise for Fund Investors
Continued From Cover
Funds With the Highest Potential Capital Gains Exposure
Name
Ticker
Potential
Capital Gains
Exposure %
Net Flow 1 Yr
($ Mil)
Fund Size
($ Mil)
Turnover
Ratio %
Annual
Capital Gain
2011
Annual
Capital Gain
2012
Annual
Capital Gain
2013
Annual
Capital Gain
2014
NAV
Vanguard PRIMECAP
VPMCX
78.33
-331
48,031
11
2.10
0.72
3.77
5.71 108.31
Gabelli Asset
GABAX
63.54
-319
3,571
5
0.93
2.81
2.99
2.98 66.81
Columbia Acorn
ACRNX
53.47
-6,016
14,659
17
1.19
1.82
2.32
5.61 33.55
Dreyfus Appreciation Investor
DGAGX
52.37
-898
5,056
7
— — — 1.95 54.80
Fidelity Growth Company
FDGRX
51.93
-7,474
44,743
12
2.71
2.28
8.12
5.06 141.22
Selected American Shares
SLADX
50.44
-1,181
4,959
26
— 2.19
4.28
9.68 44.75
Touchstone Sands Cap Sel Growth
PTSGX
49.76
-351
6,323
30
— — 0.13
0.88 18.57
T. Rowe Price Growth & Income
PRGIX
48.68
-50
1,619
15
— — — 0.89 33.11
Davis NY Venture
NYVTX
48.41
-3,900
17,80
20
— 1.40
4.45
7.04 38.10
T. Rowe Price Health Sciences
PRHSX
47.62
833
13,647
42
0.96
1.67
4.43
8.10 79.28
Morgan Stanley Inst Growth
MSEGX
45.40
-101
3,663
44
— 0.04
1.58
1.92 41.10
Fidelity Contrafund
FCNTX
45.23
-12,741
112,847
45
0.15
0.65
7.33
6.89 103.10
Fidelity Low-Priced Stock
FLPSX
44.24
-5,867
46,553
12
2.21
2.28
2.91
2.44 51.97
Data through March 16, 2015.