Long-Term Winners with a Lid on Taxes
Despite their recent run-ups, these funds still offer a big break on taxes.
Even through we're eight months into a broad market rally, many fund companies expect that capital gains distributions will be limited this year. That's because funds have been able to use last year's steep losses to offset gains generated during the recent run-up. For a picture of where the 25 largest funds sit on the capital gains front, check out my colleague Courtney Goethals Dobrow's recent article.
While investors don't need to fret too much over distributions this year, the Premium Fund Screener can pull up some long-term winners with deeply negative potential capital gains exposures, which could enable them to offset taxable gains over longer periods. (Potential capital gains exposure estimates the percentage of a fund's holdings that represent gains and is calculated on a monthly basis by Morningstar.) To start, set the screener to pull funds with top-third 10-year category rankings and manager tenures of at least 10 years. The next step is to set the funds' potential capital gains exposure to negative 40 % or less. It's also helpful to limit the results to offerings that don't trade excessively, as this can generate taxable distributions. To do this, set the screen to pull funds with below-average turnover relative to their categories. Other key criteria include limiting the results to options available to new investors and investment minimums of $25,000 or less.
To run the screen yourself, click here.
Karin Anderson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.