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.
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