Many mutual-fund investors, stung by heavy losses this year, can look forward to statements next month detailing the additional taxes they will have to pay on their funds.
Call it adding insult to injury, or pouring salt into a wound, or, as Mike Gegen, a first vice president at RBC Wealth Management in the Denver Tech Center area, likes to say, the “huge double whammy.”
“A lot of individuals don’t even realize the hit they may incur,” said Gegen, who has worked with clients to dodge the tax hits as well as possible the past three weeks.
Most mutual funds based in the state will pass out taxable gains this year despite huge declines in value.
For a handful, the gains will top 5 percent or more of the funds’ value, and many funds in that group are down 40 percent or more for the year.
With a little planning, most equity mutual funds could have balanced the increasing number of losing stock positions in their portfolios against their winners to avoid handing out gains.
But some funds likely suffered more redemptions from investors than they had expected, forcing them to sell highly appreciated holdings.
Also, many mutual funds focus on serving tax-deferred retirement plans, giving them little motivation to be tax-efficient, Gegen said.
Icon, which manages the state’s worst offender this year in terms of distributions, Icon Energy, admits as much on its website:
“Icon’s investment decisions are not dictated by the potential effects of taxes. Our process is driven, first and foremost, by valuation, not tax efficiency.”
Icon Energy Fund paid out $7.94 a share in distributions, which is massive compared with its net asset value of $13.79 on Monday.
Even after reinvesting that huge distribution, the fund is down more than 35 percent this year.
The hit was so huge that Icon decided to hand it out in early November rather than mid-December, when most funds distribute gains, so fundholders would have more time to plan out their tax strategy.
Another Denver fund dishing out the tax hits was the Janus Small Cap Value Fund. It paid out $1.92 per share of gains, a good chunk compared with its $14.49 net asset value Monday.
Janus Orion, down by more than half, handed out taxable gains of 60 cents a share. The fund had a net asset value Monday of $6.15.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
