Thursday, December 11, 2008
MUTUAL FUND DISTRIBUTIONS IN A BAD YEAR
One of the many grips that I have about mutual funds is that they will frequently pay large taxable gains during an awful year, which just adds to the pain. I got a small dose of this issue when looking at my main account this morning. One of the ways that I maintain stock exposure to companies located in Asia is by owning Matthews Pacific Tiger fund (MAPTX) which had a good run until this year. I had pared my position back to what I would call a bare minimum for this fund in 2007, trimming my stake to 150 shares with no reinvestment of dividends. I was a happy camper until this year. I like the fund and will keep it. I may even add to it sometime next year. But, today, I saw a large % distribution into my account from that fund, over $500 on the remaining small investment and I will have to pay taxes on that distribution. I am sure that I have some more coming from other funds that have had equally disappointing years. Basically, this mutual fund has returned part of my original capital and created a tax event for me. It is some consolation that most of the distribution was characterized as long term capital gains. I do not mind this so much when the fund is returning long term capital gains and the result is similar to me selling shares at a long term capital gain. This is not what is now happening. As of last Friday, the Matthews Pacific Tiger fund was down 53.3% this year and I am sure that wiped out my appreciation on the remaining 150 shares without checking. The fund is not returning to me my unrealized gains. They are returning my original capital now and I am paying taxes that I did not want to pay. These kind of events will cause me to emphasize more in the future index funds for my asian stock exposure. There are several to choose from including those sponsored by Vanguard, WisdomTree and Ishares.