My Goldman Sachs fund lost over $6,000.00 for 2018, but the Form 1099-DIV shows a total capital gain distribution of over $62,000.00. How can that happen?
The capital gain distribution reflects what positions were sold. The value of the fund represents the assets that the fund still holds. The two may be very different.
Imagine I have the world's simplest mutual fund. I start off the year with $1 million in cash and there are 10,000 shares so each share is worth $100. On Jan 1, I buy $800,000 worth of stock A and $200,000 worth of stock B. I then go into hibernation and wake up on Dec 31. At that point, I find that A has lost 50% of its value (so my stake is worth $400,000) while B has gained 50% of its value (so my stake is worth $300,000). I sell all my B shares so I now have $400,000 worth of A and $300,000 in cash.
Overall, my fund has $700,000 in assets so each share is worth $70. The fund is down 30% for the year. But the fund realized $100,000 in capital gains from selling all its B shares. So someone holding the fund lost $30/ share and owes taxes on $10/ share worth of capital gains.