(PUB) Investing 2016

3

August 2016

Morningstar FundInvestor

than most high-quality investors, and that’s hurt performance until recently. The fund paid out about 10% in capital gains in March, but it was the December 2015 payout of 27% that really stood out. Amana Growth AMAGX This fund, with a Morningstar Analyst Rating of Bronze, has a remarkable 76% PCGE , and I’m sure the 27% outflow will be enough to smoke out some capital gains. Last year, it paid out a modest 7% capital gain, but I would expect it to be more this year. The fund is rebounding nicely from a rough 2015 . It helps that its Shariah-compliant strategy keeps it away from banks. Davis NY Venture NYVTX This near-clone of Selected American is a little better- positioned than its sibling with 25% outflows and 42% capital gains. Westport WPFRX This fund may have a whopper of a capital gains distribution on the way. It is sitting on PCGE of 56% , and Westport has agreed to merge the fund into Hennessey Cornerstone Mid Cap 30 HIMDX pending shareholder approval in September. When funds merge, we often see a big cap gains payout, as the inheriting manager doesn’t want the old fund’s tax position going onto its books. In addition, the new manager may not want the stock. In short, there’s a

decent chance of a very big payout coming. The funds appear to have only one holding in common.

Gabelli Asset GABAX This fund is facing 22% redemptions on a PCGE of 65% . It paid out 13% in gains last year. It’s easy to see the reason for the outflows. The fund is in the bottom quartile for the trailing three- and five-year periods. Baron Growth BGRFX Ron Baron’s fund has seen 21% in redemptions but has a PCGE of 65% . Baron’s steady growth style often means the fund lags in growth rallies and outperforms in growth slumps. He invests in names like Vail Resorts MTN and MSCI MSCI while his peers go for biotech or fast-growing tech stocks. Thus, he’s ahead of the pack so far in 2016 , but two poor years prior to that have the fund in redemptions. The fund’s capital gains payouts have doubled in each of the past two years as Baron has to work his way through more- profitable names. What If You Want to Buy? Most of the funds I highlighted carry a Bronze rating. Thus, you might be considering buying one or maybe a different fund with significant capital gains built up. The simplest way to handle that would be to buy them in an IRA or 401 (k), where capital gains distributions are not an issue. If that’s not an option, you should probably look for a substitute fund with a more appealing tax profile. K

Funds Likely to Send a Big Tax Bill

Potential Capital Gains Exposure

One-Year Net Flow $

One-Year Organic Growth Rate (%)

Tax-Cost Ratio Three-Year

Turnover Ratio (%)

Name

Ticker

Selected American Shares

SLADX

50

-1,727,500,008

-48

3.86

27

Kalmar Growth-with-Value Sm Cp

KGSCX

66

-436,274,484

-46

2.31

50

Columbia Acorn USA

AUSAX

49

-476,745,448

-40

5.10

35

Royce Premier

RYPRX

56

-1,773,524,056

-39

3.20

13

Touchstone Sands Capital Select Growth PTSGX

46

-1,772,479,496

-38

1.14

29

Baron Small Cap

BSCFX

63

-1,205,652,825

-31

1.61

15

Dreyfus Appreciation

DGAGX

62

-1,091,720,273

-30

3.18

6

Amana Growth

AMAGX

76

-301,052,103

-27

1.29

0

Davis NY Venture

NYVTX

42

-4,050,462,082

-25

3.88

23

Westport

WPFRX

56

-143,200,609

-25

1.40

3

Gabelli Asset

GABAX

65

-551,222,750

-22

1.76

3

Baron Growth

BGRFX

64

-1,384,112,589

-21

1.25

7

Data as of July 31, 2016.