Mutual Fund Tax Clienteles

Mutual funds are held by investors in taxable and tax-qualified retirement accounts. We investigate whether the characteristics, investment strategies, and performance of mutual funds held by these diverse tax clienteles differ. Examining both mutual fund distributions and mutual fund holdings, we find that funds held primarily by taxable investors choose investment strategies that result in lower tax burdens than funds held primarily in tax-qualified accounts. Despite these differences, we find no evidence that any investment constraints that may arise from these tax-efficient investment strategies result in performance differences between funds held by different tax clienteles. *Clemens Sialm is at the University of Texas at Austin and NBER. Laura Starks is at the University of Texas at Austin. We thank Peter Brady, Federico Belo, Susan Christoffersen, Li Jin, Campbell Harvey (the editor), Jennifer Huang, Sheridan Titman, Hanjiang Zhang, an associate editor, a referee, seminar participants at the Australian National University, Columbia University, the City University of Hong Kong, the College of William and Mary, Dartmouth College, the Hong Kong University of Science and Technology, Indiana University, Notre Dame, Southern Methodist University, Stockholm School of Economics, Texas A&M University, the University of Illinois at Urbana-Champaign, the University of Mannheim, the University of Southern California, the University of Texas at Austin, the University of Toronto, and Warwick Business School, and conference participants at the American Finance Association Meetings, the China International Conference in Finance, the European Summer Symposium on Financial Markets, the ISCTE Business School – Nova Annual Finance Conference on Mutual Funds and Investment Management, the University of Oregon Institutional Investor Conference, and the Wharton Household Finance Conference for helpful comments.