We believe that relative return, or the return difference between the fund and the index over a specified period, is the most suitable calculation to evaluate fund performance and attribution for passive strategies. However, investors must determine which index return is most instructive in assessing how a manager measures up to its peers and behaves in relation to its benchmark.
In this piece, we explain how net return can provide a more comprehensive view of performance for tax-sensitive investors, and we give an example of the impact of tax withholding on returns.
The views expressed in this material are the views of the Global Equity Beta Solutions group through the period ended October 31, 2022 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
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The tax-equivalent yield shows what you would have to earn on an investment taxed at a 35% rate to equal the fund’s tax-free yield. The formula for tax-equivalent yield is: tax-exempt portion of yield/(1 – tax rate), plus the taxable portion of the yield, if any. A fund may invest a portion of its assets in securities that are subject to federal and/or state income taxes. When a fund invests in these securities, its tax-equivalent yield may be lower.
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Exp. Date: 11/30/2023