A Stock Index Mutual Fund Without Net Capital Gains Realizations

Posted: 30 Dec 1998

See all articles by Joel M. Dickson

Joel M. Dickson

Stanford University

John B. Shoven

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 1994


This paper reconsiders the literature on tax options by examining the ability to defer net capital gains realizations within an equity portfolio whose constituents change over time. Specifically, this paper examines the feasibility of managing open-end and closed-end Standard and Poor's 500 Index funds which defer net capital gains realizations. A combination of HIFO (highest in, first out) accounting procedures and the systematic booking of significant losses in portfolio constituents would have allowed the open-end fund variant to match the annual pre- tax return of Vanguard's Index 500 Fund while improving annual after-tax performance by as much as ninety-seven basis points through the elimination of all capital gains realizations between 1977 and 1991. Deferring capital gains is shown to be easier for open-end funds relative to closed- end funds while the additional turnover required to implement these strategies is quite modest. The authors name the tax-sensitive funds in this paper "SURGE (Strategies Using Realized Gains Elimination) Funds."

JEL Classification: G2, G23

Suggested Citation

Dickson, Joel M. and Shoven, John B., A Stock Index Mutual Fund Without Net Capital Gains Realizations (April 1994). Available at SSRN: https://ssrn.com/abstract=5427

Joel M. Dickson

Stanford University

Stanford, CA 94305
United States

John B. Shoven (Contact Author)

Stanford University - Department of Economics ( email )

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Stanford, CA 94305-6072
United States
650-326-5377 (Phone)
650-328-4163 (Fax)

National Bureau of Economic Research (NBER)

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