Financial pros argue that low-turnover funds (or funds that don't trade very often) are generally more tax efficient than high-turnover funds. That's somewhat of a myth. Morningstar has found that there's no one-to-one relationship between a fund's turnover rate and its tax efficiency. In fact, a fund with a 200% turnover rate can be just as tax efficient as a fund with a 50% turnover rate.
However, we have found that funds with exceptionally low turnover rates--below 20%--do tend to be tax efficient. Large-company index funds are tax friendly, for example, because they usually carry single-digit turnover ratios.
We've created a list of low-turnover U.S. stock funds using Morningstar.com's Fund Screener. To create the list, enter the following:
- Under "Select Group," choose Domestic Stock.
- Under "Turnover less than or equal to," choose 25%.
- Click "Show Results" for the list.
- On Results Page, choose "Portfolio" in the View drop-down box.
- Click on "Turnover %" to rank funds on the list from lowest turnover to highest turnover.
You can manipulate any of the inputs, if you'd like, narrowing your search to funds in a particular Morningstar Category, or funds that earn a particular star rating, etc.
Tax-Managed Mutual Funds >>