Tax-Efficient Asset Management: Evidence from Equity Mutual Funds

51 Pages Posted: 6 Apr 2015

See all articles by Clemens Sialm

Clemens Sialm

University of Texas at Austin - McCombs School of Business; National Bureau of Economic Research (NBER); AQR Capital Management, LLC

Hanjiang Zhang

Washington State University - Carson College of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 2015

Abstract

Investment taxes have a substantial impact on the performance of taxable mutual fund investors. Mutual funds can reduce the tax burdens of their shareholders by avoiding securities that are heavily taxed and by avoiding realizing capital gains that trigger higher tax burdens to the funds’ investors. Such tax avoidance strategies constrain the investment opportunities of the mutual funds and might reduce their before-tax performance. Our paper empirically investigates the costs and benefits of tax-efficient asset management based on U.S. equity mutual funds. We find that mutual funds that follow tax-efficient asset management strategies generate superior after-tax returns. Surprisingly, more tax-efficient mutual funds do not underperform other funds before taxes, indicating that the constraints imposed by tax-efficient asset management do not have significant performance consequences.

Suggested Citation

Sialm, Clemens and Zhang, Hanjiang, Tax-Efficient Asset Management: Evidence from Equity Mutual Funds (April 2015). NBER Working Paper No. w21060. Available at SSRN: https://ssrn.com/abstract=2590223

Clemens Sialm (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://faculty.mccombs.utexas.edu/Clemens.Sialm/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Hanjiang Zhang

Washington State University - Carson College of Business ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

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