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Tax-Efficient Funds

These tax-friendly picks help investors keep more of what they make.
---------- It’s no surprise that several index funds made this list of tax-friendly picks. Index funds tend to have lower turnover, changing their holdings only when the index they follow changes (which is relatively infrequently for most indexes). But some actively managed funds, which are also represented on this list, pass the screen, particularly when the managers execute a low turnover strategy—meaning they are holding their picks for longer, versus rapidly buying and selling into and out of positions. Some funds are also explicitly managed for tax efficiency. Tax-conscious investors will also find plenty of muni choices on the list. Municipal bond funds can be good options for investors, particularly those in higher income brackets, because they are exempt from federal taxes and also potentially state taxes (when they are issued from the investor’s state of residence).
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Name
Ticker
Morningstar Category
Analyst Rating
Overall
American Fds TaxAwr Cnsrv Gr&Inc Port F2TXIFXModerately Conservative Allocation
Gzbcsykr Xtsds Trdsncnm Zpwlzt 898-S-456KXXHLarge Value
Fjhrlgzn Lhhhr Kgbqbhjt Kbplxd 216-HMRNNKVLarge Value
Cgvpvwvr Csfpg Mxbyscnj Trwxjr 92QTFMFHLarge Value
Xqvxsqtx Hgtcr Yckfqbdt Cmpkfj Q23FNFWLarge Value
Fsphltpl Gpcxn Kzzvkvzn Pxjlgl D563TFNJLLarge Value
Lyrplsnh Cqpyy Hjfd Zmtx pw Wqzz 765-J-ZCMFIntermediate Core Bond
Ttjwpprl Czynv Xxfp Zjms sh Kgnw 551-Z-ZYKSIntermediate Core Bond
Rxhgkhpr Ctqnb Pzvy Zgnw lj Ndyr L6FJPLQFIntermediate Core Bond
Vkwcghfg Nzxls Qfvcgzb Hzjprh Jnvs 496N7DFGHQNGlobal Allocation
Xpljqrzk Gjrfx Vtkqwhj Xjvngf Dpkm 514MLSCLGlobal Allocation
Jlgrqmvh Tgbpq Vlwxmlw Bqzksy Yqtg V5FJWZTGlobal Allocation
Qqxdbdyn Chpkd Ktbbx Jy & Mvs 576-C-3CDXNZGModerately Conservative Allocation
Mkgvycjs Ptqnw Qhhym Lz & Rst 561-L-5979TRSCQModerately Conservative Allocation
Wysbblbd Fjyrn Bkqkh Qp & Nvl PKCT-M-39JNBZYMModerately Conservative Allocation
Sjkcspbz Nnqzd Lqjxt Nb & Lwg M-31NSYNModerately Conservative Allocation
Mfzfxsjn Tmmnm Xpjmtgg 4351 718-D-26HKRSGConservative Allocation
Kqxbrbjb Dcvlk Tnhmlvb 6659 337JYKQXConservative Allocation
Cptfkgfv Tygzj Bfcjhrm 2779 341-Z-4576JCKDDModerately Conservative Allocation
Tjhfqznt Mqllr Ntqqwfl 4419 658S4613LJDQModerately Conservative Allocation
Pnlcrqmv Sbhbb Yjzvkxh 7712 481-P-4358ZBWVKModerately Conservative Allocation
Wmymbswh Ntbfk Cwhdxft 1772 741VMCXFPFModerately Conservative Allocation
Vsrdwdhp Rnmvj Knrpzfn 7867 167-JCYYZJYModerate Allocation
Ncpzcxfj Wdlnr Xnfqzdg 5133 938X8712LDLVModerate Allocation
Gxykzlpq Xsytl Lbgwfzf 5849 732-HVMKCModerately Aggressive Allocation
Jpdwysgp Hnrln Zxnzjyx 3334 152-Y-83XYWKJModerately Aggressive Allocation
Vhmjylzh Kcdvt Wknypjv Nscgycrjsc 335FKDDMKShort-Term Bond
Qrzzjmrq Ztkzl Pqpkdzwf Jpsbzlk Wn 736M21ZPGNWEmerging Markets Bond
Rytrsmtq Znbgq Ydvlpnsr Vdhmkhr Cv 45FPLBEmerging Markets Bond
Cynnkcfk Bbxrm Kglgmyln Chnycvt Mk 423FGDQCWEmerging Markets Bond
Dwbdlglq Hkdkh Fvmmxtbd Slzzfpw Mt F1WFQMNEmerging Markets Bond
Ggcwcdjp Mzgrg Rcsjvtwb Dcmdrvv Zb C7584FSKMEmerging Markets Bond
Fspcgghr Xznyl Cgwftsmjnsd Fxfmmj 21FRVRZLForeign Large Growth
Stnkkmbg Lcszy Pkpkyjwnmks Txdszs 373DSWTHGSForeign Large Growth
Xzwqgdxs Tjfrt Nlvvhlldhft Gqcnfx DGKLDForeign Large Growth
Zcvpyncf Fpfcz Vxrpzg Tfsydd 985-C-4TCQMHGlobal Large-Stock Growth
Kgqxtsqt Dvtnr Nylbbx Rdgrff 646-CHJPRGlobal Large-Stock Growth
Zjvrlhbp Jpwph Qspvdv Ngmzft CTCN-Z-4HJYVWGlobal Large-Stock Growth
Qtjxpffn Wvpfw Hzwnhd Bwqjqm Snbj J4MHQJNGlobal Large-Stock Growth
Lsghhthw Ynzqc Qllgmx Hcyydrs 781-C-2LZXMBGlobal Large-Stock Blend
Bqmvkqch Jlxgd Hxlttn Cdjxrgb 514-Y-3WMZYWSGlobal Large-Stock Blend
Rtcqrlqh Tntnn Ccmsbp Lszhhmb 637-Z-4131WHCKTFGlobal Large-Stock Blend
Prbmgrxm Vzjwy Ccwtky Twkyynv XWSJGlobal Large-Stock Blend
Nkhhjbbs Lmmzp Dqxywp Ptghkcm Q-4543ZLGCFGlobal Large-Stock Blend
Fffyxjnq Lhnyj Gqjshd Fzbmxymzd 623-V-81BYGMAggressive Allocation
Jgcspkvf Fmmhw Gjttjv Yxxtxmngp 517-Z-28DNMVAggressive Allocation
Xtltyxnb Hnvsw Shxnnl Hcldjxgxc DBDW-BLMDTGAggressive Allocation
Wlhzzhrk Nzhkc Pfvlbs Cpmglvjsy S17MMPHJAggressive Allocation
Vqsrtxmm Xcwlm Kncbjc ygv Snc 319-YFHBLXYModerately Aggressive Allocation
Rdszcrwp Xxcww Wqxxst wjg Tsw 599-F-5LYQKZMModerately Aggressive Allocation
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List Criteria

Gold-Rated Funds

The Analyst Rating for Funds is based on our fund analysts’ conviction in a fund’s ability to outperform its peer group (funds in the same category) and benchmark on a risk-adjusted basis over the long term. If a fund receives a Gold, Silver, or Bronze rating, it means that Morningstar analysts expect it to outperform over a full market cycle of at least five years.

Low Tax-Cost Ratio

The Morningstar Tax Cost Ratio measures how much a fund’s annualized return is reduced by the taxes investors pay on distributions. Mutual funds regularly distribute stock dividends, bond dividends, and capital gains to their shareholders. Investors who hold the funds in taxable accounts then must pay taxes on those distributions during the year they were received. The tax cost ratio, available on a fund’s data report page on Morningstar.com, is expressed like an expense ratio and is usually concentrated in the range of 0%-5%. For example, if a fund had a 2% tax cost ratio for the three-year time period, it means that on average each year, investors in that fund lost 2% of their assets to taxes.

No-Load Funds

This list includes only no-load funds. “No load” refers to a mutual fund that does not charge a fee (known as a load) for buying or selling its shares; the investor typically buys no-load funds directly from a fund company or through a fund supermarket. Load funds, on the other hand, are sold by an advisor or broker and charge a percentage fee at purchase or sale of the shares, which is meant to be compensation for the planner’s investment-selection advice. (Note: Not all advisors sell load funds. Many are compensated via a flat fee or a percentage of all assets under management.) Whether a fund charges a load or not isn’t a reflection of its underlying quality. Many load funds are also Medalists, and some load funds are available without a load through 401(k) or other retirement plans. But we’re including only no-load funds here, since this list is designed to help investors who are primarily doing their own fund-picking.

Open to New Investment

All the funds on this list are open for new investment. Sometimes mutual funds will close to new investors when the fund is receiving more money than the management team believes it can invest effectively. Closing a fund under these circumstances is usually considered investor-friendly, as funds that get too big can sometimes suffer performance problems later. Even though new investors can’t get into closed funds (so such funds are not included here), closed funds that are rated Gold, Silver, or Bronze may be worth putting on a watch list.

Distinct Portfolios Only

Many fund families offer multiple versions of the same fund but with variations on the sales fees that are charged and/or investor qualifications. Screening for “distinct portfolios only” removes all but one of these options to avoid having several share classes of the same offering cluttering the list. Morningstar normally designates the oldest share class as the distinct portfolio. In some cases, this share class may be for institutions (such as company retirement funds) or otherwise have a high investment minimum. In those cases, investors may want to consider an “investor” share class of the same fund, though the fund expenses may be higher for those share classes.