Is Your Tax-Managed Fund Manager Hiding in the Closet?
Journal of Wealth Management, Vol 18, No. 2 (Fall 2015)
Posted: 26 Aug 2015
Date Written: May 28, 2015
Our study examines the performance, expense, and tax efficiency of domestic equity mutual funds that have a stated goal of minimizing the taxes paid by their shareholders. We arrive at three main findings. First, on average, over 95% of the variability in the returns on these funds is explained by common factors in stock returns. Second, there is little difference between the mean values of their expenses and those of their actively managed counterparts. Third, when compared to their inherently tax-advantaged passively managed counterparts, the tax-managed funds fail to save their investors more money on taxes than their incremental expenses.
Keywords: Tax-Aware Investing, Dividend and Capital Gains Taxes, Taxes and Portfolio Choice, After-Tax Returns, R-Squared, Investment Advisors, Mutual Fund Performance, Closet Indexing
JEL Classification: G11, G20, G22, G23, H24
Suggested Citation: Suggested Citation