340 / 708
2
past few years, so check with your brokerage to see
what your cost basis is.)
12 Funds Cruising for a Tax-Related Bruising
Let’s take these
12
funds in order of outflows. I used their
12
-month organic growth rate, which essentially tells
you by what percentage the funds have shrunk from
their original asset base a year ago.
Selected American
SLADX
This fund saw nearly half its assets (
48%
) go out the
door, and it has a
PCGE
of
50%
. In fact, it just made a
10%
distribution on July
1
. In each of the past two
years, it made distributions in July and December. Last
year, the December payout was a little smaller than
the July payout, but it still seems likely that payouts will
continue as long as outflows do.
Kalmar Growth-with-Value Small Cap
KGSCX
Things are looking tough for Kalmar Investments. This
fund had
$436
million in outflows the past
12
months,
leaving it down to just
$180
million. In addition, Vanguard
fired it from running a sleeve of
Vanguard Morgan
Growth
VMRGX
, though it still runs a piece of
Vanguard
Explorer
VEXPX
. The fund has a
66%
PCGE
. So, for
the short term I’m worried about capital gains payouts,
but for the longer term I’m worried about how many
more client defections it can handle. At least this fund’s
one-year returns are a solid top-quartile, so perhaps
outflows will slow or stop. Last December, the fund
paid out about
25%
of assets under management as
capital gains.
Columbia Acorn USA
AUSAX
This fund has seen
40%
of
AUM
go out the door, and it
has
PCGE
of
49%
. The fund is currently on a twice-
a-year payout schedule with distributions in June and
December. The June distributions have been much
smaller than the ones in December. This June, the fund
made a
13%
payout, but in December, it made a huge
34%
payout. That’s awfully hard on a taxable account.
Royce Premier
RYPRX
After a long cold spell, this fund has rebounded to post
strong
12
-month returns. Yet the three- and five-year
returns are weak, and that explains why
$1
.
7
billion has
gone out the door, leaving the fund with
$2
.
3
billion
total.With a hefty
56%
of capital gains exposure, it seems
likely the fund will make a big distribution. A huge
38%
weighting in industrials makes the fund pretty
cyclical, but it still has a solid track record.
Touchstone Sands Capital Select Growth
PTSGX
This fund’s
4
.
5%
year-to-date loss makes it one of the
worst-performing large-growth funds. Its big
42%
tech weighting is the culprit, and a number of biotech
stocks are hurting, too. That would make three
straight years of underperformance. This leads me to
believe that outflows will continue to be strong
throughout the second half of
2016
. The fund has
seen about
38%
of
AUM
go out the door, and its
46%
PCGE
makes capital gains all but inevitable. In
2015
, the capital gains payout was a fairly modest
10%
, but I doubt it will be that low this year.
Baron Small Cap
BSCFX
This fund’s
31%
outflow is a notch below that suffered
by the Touchstone fund, but its
PCGE
is a very large
63%
. With a low turnover last measured at
15%
, the
fund is certain to have some long-held names with
large embedded gains. Manager Cliff Greenberg made
an ill-timed bet on master limited partnerships
that got hammered when oil prices dropped in
2015
.
Dreyfus Appreciation
DGAGX
This is another very low turnover fund that doesn’t
often make big capital gains distributions. But with a
62% PCGE
and
30%
outflows, it won’t likely have
much choice. The fund’s high-quality bent gives it
good defensive qualities, but it owns more energy
Funds Facing a Tax Challenge
Continued From Cover
p
Average 3-Yr Tax-Cost Ratio
p
Average PCGE
30
6
-18
-42
-66
2.0
1.6
1.2
0.8
0.4
12/2005
06/2007
12/2008
06/2010
12/2011
06/2013
12/2014
06/2016
Taxes Follow Spikes in PCGE
Data as of July 2016.