Is Your Tax-Managed Fund Manager Hiding in the Closet?

Journal of Wealth Management, Vol 18, No. 2 (Fall 2015)

Posted: 26 Aug 2015

See all articles by Dale L. Domian

Dale L. Domian

York University - School of Administrative Studies

Philip Gibson

Texas Tech University

David Nanigian

California State University, Fullerton - Department of Finance

Date Written: May 28, 2015

Abstract

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

Domian, Dale L. and Gibson, Philip and Nanigian, David, Is Your Tax-Managed Fund Manager Hiding in the Closet? (May 28, 2015). Journal of Wealth Management, Vol 18, No. 2 (Fall 2015). Available at SSRN: https://ssrn.com/abstract=2637474

Dale L. Domian

York University - School of Administrative Studies ( email )

Toronto, Ontario M3J 1P3
Canada
416-736-2100, x20009 (Phone)
416-736-5963 (Fax)

Philip Gibson

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

David Nanigian (Contact Author)

California State University, Fullerton - Department of Finance ( email )

PO Box 34080
Fullerton, CA 92834-9480
United States

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