Aberdeen beats the tax man

The Aberdeen Financials Fund has emerged as the most tax-efficient Australian equity product, according to a new study by Navigator Research.

Stuart Fechner, head of Navigator Research, said its survey of 15 funds with the highest franking levels in 2005 that were listed on the Navigator platform showed investors should closely assess the impact of tax on their returns. “The typical investor only considers risk and return. This research shows they should be investigating a third factor – the tax take,” Fechner said in a statement released on Sunday. “We have looked beyond the performance percentages to see how to really keep more dollars in your pocket.” While the Aberdeen Financials Fund topped the list, Perpetual’s Wholesale Geared Fund came in second ahead of BT’s Wholesale Australian Share Fund. “The fourth-placed Vanguard Australian Shares Index Fund could be regarded as a proxy benchmark due to its passive, index-matching style,” Fechner said. Other funds to make the top 10 most tax-efficient funds, listed in descending order, were: Axa – Wholesale Australian Equity Fund – Industrials Fund; MLC Investment Trust IncomeBuilder; Merrill Lynch Wholesale Australian Share Fund; Ausbil Australian Active Equity Fund; Tyndall Australian Share Wholesale Portfolio, and; Investors Mutual Australian Share Fund. Fechner said the tax efficiency of a fund is affected by a number of factors including: franking levels; stock turnover (churning); capital gains distribution; net unit movements, and; use of gearing “Ultimately, tax efficiency depends on the investor’s personal circumstances,” said Stuart However, he said the Navigator Research findings have implications for even for those in concessionally taxed super funds as well as pensioners. “Watch out for high stock turnover in a fund which can erode its returns, such as transaction costs,” he said. “Geared investments might also be best avoided as it may not be prudent for superannuation due to the increased sensitivity to market risk.”