Morningstar uses a tax-cost ratio, which measures how much a fund’s annualized return is reduced by the taxes that an investor in the highest tax bracket would pay on distributions. Using this ratio to look at exchange-traded funds with at least a 5-year history, shows ETFs are overall more tax efficient than mutual funds. Why?
Most ETFs had a lower tax-cost ratio than mutual funds. Especially in the asset classes where high turnover in mutual funds generate capital gains. Capital gains have been rare with ETFs.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.