Active mutual funds tend to generate capital gains due to redemption needs or fund managers’ investment decisions. Many people loathe the capital gains because of taxes which ensue. What if the capital gains are a sign to rebalance?
For example, many active stock funds distributed huge capital gains in the end of 2021. As we know, 2022 was a terrible year for the stock market. If those capital gains had not been reinvested, they could have been used to buy the dip in 2022.
Some active stock funds seem to time the capital gains pretty well. For example, in the past 10 years, 2015 and 2022 were the worst years for the emerging markets. NWFFX (American Funds New World Fund) happened to distribute its biggest two capital gains in 2014 and 2021, just before emerging markets crashed. FIGFX (Fidelity International Growth Fund) also seems to distribute capital gains every time a bad year would come afterwards, except 2022 (2023 was a good year for international stock markets).
It is possible that the fund managers felt the stock valuations were too high, so they sold the stocks. It is also possible that market participants felt that way, so they sold their mutual fund shares, which forced the fund managers to sell the stocks.
Of course, some active stock funds distribute capital gains every year, which is a sign that the fund managers control capital gains poorly. However, is it possible that active mutual fund’s capital gain may not be that bad?
For example, many active stock funds distributed huge capital gains in the end of 2021. As we know, 2022 was a terrible year for the stock market. If those capital gains had not been reinvested, they could have been used to buy the dip in 2022.
Some active stock funds seem to time the capital gains pretty well. For example, in the past 10 years, 2015 and 2022 were the worst years for the emerging markets. NWFFX (American Funds New World Fund) happened to distribute its biggest two capital gains in 2014 and 2021, just before emerging markets crashed. FIGFX (Fidelity International Growth Fund) also seems to distribute capital gains every time a bad year would come afterwards, except 2022 (2023 was a good year for international stock markets).
It is possible that the fund managers felt the stock valuations were too high, so they sold the stocks. It is also possible that market participants felt that way, so they sold their mutual fund shares, which forced the fund managers to sell the stocks.
Of course, some active stock funds distribute capital gains every year, which is a sign that the fund managers control capital gains poorly. However, is it possible that active mutual fund’s capital gain may not be that bad?
Statistics: Posted by henryphseven — Sun Mar 17, 2024 10:20 pm — Replies 0 — Views 30