I can see that some funds have better tax advantages to others. Turn over ratio is a clue. M* has a tax cost ratio for for funds. But it doesn't seem accurate.
An Example, two funds. FNCMX and FSCSX.
FNCMX Tax Cost Ratio for 3 yrs 0.29 , turn over 15% , YTD gain 18.38%
FSCSX Tax Cost Ratio for 3 yrs 2.21 , turn over 48% , YTD gain 22.82%
As I understand M* description of TCR I subtract it from Total return to get an estimate of return after taxes.
FNCMX 18.38% - 0.29 = 18.09%
FSCSX 22.82% - 2.21 = 20.61%
This leaves FSCSX the winner for the year (so far). But this doesn't consider my tax bracket among other things.
So what would your thoughts be on evaluating two Funds? Don't need to hear these are good or bad funds or why I chose these two for my example. Give your own two for comparison if you wish. And yea ETF's have advantages. But I am looking for ideas on this type funds evaluation. Thanks.
I decided my comparison could be better. I should use the TCR for the same time period as the return
FNCMX 1yr 6.91% - 1 yr TCR 0.46 = 6.45%
FSCSX 1 yr 15.33% - 1 yr TCR 3.01 = 12.32%
You are comparing funds that are quite different - NASDAQ Comp Index vs Sector-Software/IT Services [with higher CG distributions]. M* uses the maximum tax rates in its Tax Cost Ratio calculations, so the effect should be less for most investors.
I selected these two funds partially because they are so different tax wise. What you say about maximum tax rate I agree. I also found funds are required to report this highest tax rate. That I didn't know. Searching the Fidelity web site I found taxes reported in a section Titled "Quarter-End Average Annual Returns". I'll paste for FSCSX here.
Looking at 1 yr column, as of 4/29 FSCSX was 18.5% . After Taxes on distributions 16.72%. That is easy enough. But it also shows 11.68% after Taxes on distribution & Sale of funds. That is significant. Of course that is for top tax bracket.
Checking FNCMX it is 10.31% 1yr, After Taxes on distributions 9.8% and for taxes on distributions and sale 6.36%
I have used M* 3yr Tax Cost Ratio in a formula I have for scoring funds for many years. Actually I have two formulas. A score for taxable and a score for non-taxable. But I am only seeing a partial impact to my calculation. I will re-think.
Well my paste in the above has been butchered by M*. invalid HTML has been removed. So now the HTML is correct but the data is a mess. Is that something like the surgery was successful but the patient died?
I'll try to straiten it out in a bit.
ok, I put the copied HTML from Fidelity in a Libre Office writer doc and exported as a jpg file. Then use PIX to crop and then upload to here.