Buying mutual fund in taxable account (Sequoia/Akre)

[sleepydragon]

Just wondering what does people think of investing in Sequoia and Akre funds? And also is it wise to invest in mutual funds in a taxable account?

 

The problem I see is this: for a fund like Sequoia (which WEB had recommended), there’s very large unrealized capital gains (I think about 80%). So if one day they decide to realize these gains, any new fund investors will end up with a big tax bill despite those stocks were bought long before the new investors invested in the fund. This might happen when there are a lot of investors need to redeem (i.e. in a bear market)

 

The fund’s price will drop by the amount of the gain realized so the new investors will pay lower tax later on, but it’s still seems annoying since you are effectively prepaying the tax.

 

On the other hand, if I have some long term realized capital loss which so far I have no use of, it seems not a problem anymore?

 

[Jurgis]

Chuck Akre partially officially retired: https://www.mutualfundobserver.com/2020/11/manager-changes-october-2020/

[stahleyp]

I wouldn't touch either of those in a taxable account. Akre was a good manager but he didn't even outperform the S&P 500 by a huge amount for the first 7-8 years of the fund (he did outperform which is good for an active manager but not a huge difference especially when you factor in taxes).

[thepupil]

 

I don't think Buffett's recommendation of the Sequoia Fund in 1969 has any relevance whatsoever to the merits of the fund today, given that much has changed in the 51 years since Buffett's initial recommendation. If he has touted it more recently (or maybe within the past decade?), please correct me and I'll humbly withdraw my snark.

 

[thowed]

Fundsmith have a Delaware L.P. (Sorry - I don't know if this is any good tax-wise as I'm not up on the US tax system) which might be a decent proxy for those other funds.

[RadMan24]

 

I don't think Buffett's recommendation of the Sequoia Fund in 1969 has any relevance whatsoever to the merits of the fund today, given that much has changed in the 51 years since Buffett's initial recommendation. If he has touted it more recently (or maybe within the past decade?), please correct me and I'll humbly withdraw my snark.

 

He mentioned Sequoia after Valeant disaster , 2016/17 annual meeting, one of those. Recommendation was that it was likely to do well in the future. Both spoke to its failures, but also praise in its operations.

 

Sequoia recently had another taxable gain transaction, but I'm sure you'll do well in a taxable account; they have had some really good investments of late.

[sleepydragon]

Thanks all.

I get conflict opinions on whether it makes sense to buy mutual fund in taxable account.

Most people think it’s dumb.

But it seems the tax is only pre-paid and I pay lower tax later on, so it’s not a big rip off, I think?

 

Both Akre and Sequoia has very low management fee, so it’s not too bad I guess..

[thepupil]

https://www.thehobbyistinvestor.com/berkshire-hathaway-2016-annual-meeting-audience-question-22/

 

Thanks! Here it is. One can see the exact language here.

 

They did indeed, advise clients to “stay with the firm as reconstituted”. I was wrong in that I didn’t think they’d recommended Sequoia actively after the older generation had passed or retired.