ETF Ownership Stays Status Quo
Active management has a place, and it moves markets and prices more than broad ETFs. When Warren Buffett’s Berkshire decided to buy 80 million shares in Apple (AAPL), they crossed the 5% threshold with conviction and created momentum for the stock to reach one trillion dollars in market value. Most of the ETF ownership between Blackrock, Vanguard, and State Street have stayed status quo since the beginning of the year. Don’t blame ETF ownership for Apple’s decline.
Capital Group, including American Funds, is another example of active management. In the latest quarter, the firm aggressively accumulated over 71 million shares Facebook (FB) shares while again the ETF money has stayed the course. These are but two examples highlighted in the activity of the largest companies in the S&P 500, but what is clearer is that actively managed mutual funds in 2018 will surprise many fiduciaries and investors in taxable accounts with meaningful taxable gains.
Mutual Fund Capital Gains In 2018 Will Provide Investors The Final Reason To Allocated to ETFs
Making changes in anticipation of market cycles and dynamics may make sense, but returns need to be justified and capital gains distribution from mutual funds in the range of 5-38% should provide rational investors with further incentives to allocate further to the ETF wrapper. Importantly, we are not talking small fund family complexes. For example, the Capital Group/American Funds is an example of a $400 Billion fund family that announced distributions in the range of 5-11%. Through our research in the ETF Think Tank, we have also identified other mutual fund complexes that may realize substantial gains. A short list of examples can be found below, but Morningstar’s Christine Benz highlighted this issue when she wrote “More Pain for Mutual Fund Shareholders in 2018.” Bottom line: if you are a fiduciary or investor with a taxable account exposed to mutual funds, you must double check your statements and consider ETF alternatives.
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