How to Recognize Funds for Tax Efficiency

Jaclyn Badal of The Wall Street Journal has a story on recognizing mutual funds for tax efficiencies. She concludes her story in this way:

Good indicators of a tax-efficient fund strategy are low annual turnover -- below about 30% -- and a potential capital-gains exposure, or the percent of a fund's assets that represent gains, of less than 25%. Both figures can be found for free at Morningstar.com.

Note that some funds' after-tax returns may be attractive partly because they have used losses harvested during the bear market of 2000-2002. Funds have up to eight years to use past losses to reduce capital gains. Morningstar factors relevant past losses into its calculation of capital-gains exposure.