Following 2013’s significant gains, many mutual funds are poised to make large, taxable capital gains distributions this month for 2014. In many cases, these distributions amount to greater than 10% of current mutual fund values.
One way BSW adds value for our clients is by diligently harvesting unrealized losses and sidestepping capital gains distributions where appropriate. We sidestep taxable capital gains distributions by selling the mutual fund that is going to distribute gains and then subsequently reinvesting the proceeds in a similarly managed Exchange Traded Fund (ETF). We will then sell the ETF and reinvest back into a permanent position in January 2015. You may see an increase in trading activity in your taxable accounts for the month of December due to these tactical trades. These movements are aimed at minimizing your tax bill for 2014, while maintaining your current exposure to growth assets.
We hope this update provides you with better insight into some of our year-end portfolio management procedures. If you would like to discuss these tax strategies or your portfolio in greater detail, please don’t hesitate to contact BSW. As always, we are happy to help.
– Yiwen Chen, Associate Portfolio Manager & Reporting Specialist