An article targeted for individual investors appeared on Forbes online today listing mutual funds that have high turnover vs. those with low turnover. The point was well made that high turnover funds generate short term taxable gains which are taxed at higher rates than long term capital gains. For investors that are still investing in actively managed mutual funds, more active funds can be held in their tax deferred accounts, while the less active mutual funds can be held in taxable accounts when possible.
A quick glance at the table reveals that six out of the ten favored low turnover funds have sales charges of 5.75%! Only three are no load funds. The performance shown is just for the latest 12 months, but only four out of ten beat the low turnover S&P 500 index during that time frame. Of course, a longer time frame would be necessary to gain any real insight into the performance against the index. Based on these numbers I must ask why anyone would invest in the majority of funds on this list since they underperformed the benchmark index and charge very high load fees. This looks like a case of putting the cart before the horse. Investment performance comes first, then tax consideration when investing.