The industry’s top-performing tax-efficient funds, while pricier than their peers, have paid off over the past decade.
Top returns among mutual funds and ETFs with 0% tax-cost ratios range from about 7% to nearly 25% over the past decade, Morningstar Direct data show. With an average 10-year return of 10.14%, the ranking is led by ETFs, a detail Grant Engelbart, director of research and senior portfolio manager at CLS Investments, says should come as no surprise.
“The ETF structure is great for minimizing capital gains, as low cost basis/high gain positions can be transferred out of the ETF without tax consequence using the creation/redemption mechanism,” Englebart says. “These funds have also grown assets fairly well over the period.”
Muni and high-yield bond funds dominate the list, data show. “The muni bonds showing up makes sense,” Engelbart says, adding, “This was a strong period for fixed-income returns, and municipal bonds have federal tax-free income produced, which leads to the low tax cost ratios.”

Read the Full Article