dreemer:

Capital Gains distributions are probably a good thing in UP years, it may represent the manager taking profits and putting that money into better valued stocks. I see nothing good about realizing Capital Gains in DOWN years. I think that almost always means the manager is dealing with meeting redemptions, and there is nothing worse than seeing your account balances shrink and still having to pay Capital Gains taxes. Even in a tax deferred account, I don't really see any positives.

-dale 

 

 

Dale,

Name me one substantive difference between CGs and dividends in a mutual fund.

Both are paid in cash and can be reinvested in more shares, spent, or some of each.
Both are currently taxed at favorable rates in a taxable account.
Both drop your NAV by the exact amount as the distribution.
Both are preceded by by an NAV increase in the exact amount of the distribution.
Both allow you to decide how to utilize your gains rather than forcibly storing in NAV

Dividends are paid in $ per share.  Realized CGs can be used to increase the number of shares, thus increasing the dividends and thereby the income stream.

Managers of balanced funds, which is what we are talking about, do not need to sell stocks for redemptions.  They sell stocks when they feel that have reached the goal they set for them when bought or when they realize that the goal has changed.

Wellesley and Wellington have been  "distribution" funds, for the last 10 years, having approx the same NAV now as ten years ago.  IOW, their TR and their distribution return is the same. 

best,

Bill