Why I Love/Hate Morningstar's Tax Cost Ratio

Tax Cost Ratio is invaluable for measuring an ETF's tax-efficiency. Morningstar should go further.

In early 2001, SEC issued a rule called Disclosure of Mutual Fund After-Tax Returns, aiming to help investors understand how tax impacts returns.

The rule noted that mutual fund distributions in 1999 resulted in over two percentage points of tax cost, which came as a “shock” to investors.

Although Morningstar had been publishing after-tax returns since 1…