As mutual fund managers are changing jobs more often its creating a larger tax burden on investors, according to the Wall Street Journal.
New management can bring about changes in investment strategy, but it can also mean higher taxes for investors who hold a fund in a taxable account. A new manager may be eager to customize a fund and will often sell unwanted holdings inherited from a predecessor.
Underperforming managers are being fired more quickly due to tighter industry competition. Additionally, some managers have abandoned mutual funds for hedge funds. The average mutual-fund manager had been on the job for 4.5 years, down from 5.3 years two years earlier, according to Morningstar.
Investors shouldn't confuse capital-gains distributions with higher returns from their fund investments. However much a fund pays out in capital gains, the same amount is subtracted from the funds net-asset value. In the end, investors haven't gained anything from the distribution, but owe taxes. Additionally, some investors leave a fund when there are management changes, which can compound a tax problem for investors as managers are forced to sell holdings to meet the redemptions.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.