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Vanguard Tax-Managed Small Cap(VTMSX) is a good choice for taxable accounts, according to Morningstar. It's down 0.9% this year, but has a 10-year average annual return rate of 7.6%.
Morningstar analyst David Falkof writes that "small-cap funds tend to have poor tax efficiency, as most managers eventually sell for a gain when successful stocks grow into larger companies. This fund, however, avoids paying out gains to shareholders as taxable events. Using a strategy called tax-harvesting, the fund gradually accumulates losses from underperforming holdings to offset future capital gains from better-performing names."
Its strategy also includes trying to deter short-term investors whose redemptions could trigger taxable gains by maintaining a $10,000 minimum initial investment, said Morningstar, and "thus far, the fund has never paid a taxable gain."
The fund's five- and 10-year tax-adjusted returns are better than 75% of its small-blend peers through October.
The fund's top pick is
Vanguard REIT Index ETF(VNQ), at 3% of the fund, followed by
Regeneron Pharmaceuticals(REGN), which discovers, develops, and commercializes products that fight inflammation, cancer, and eye disease (it has gained 83% this year), and
Healthspring(HS), a Medicare-focused managed-care organization, which is up 103% this year.