When mutual fund managers sell shares of stocks in their portfolios after prices have risen, investors in those funds may end up with big tax bills. That was especially true in 2013 as the stock market soared, resulting in hefty capital gains taxes. But some fund managers carefully take steps to reduce the tax bite for investors. They may do that by holding on to stocks for years rather than radically changing the portfolio every year. They also may sell losing stocks to register capital losses that help offset capital gains.

Helpful: You can check tax efficiency over various periods of time, from one to 10 years, by looking up a fund’s “tax-cost ratio” at Morningstar.com. A 0% ratio means the fund had no taxable distributions…a 5% ratio indicates that investors in the highest tax bracket lost 5% of their annual returns to taxes on distributions…and so on. My favorite tax-efficient funds now…

Smead Value Fund (SMVLX). Manager William Smead, who launched the fund in 2008, looks for bargain-priced large and mid-cap stocks that he can hold for long periods. High-bracket fund investors lost just 0.32% due to taxable distributions over the past five years, placing it in the top 2% of its category for tax efficiency. Over the same period, Smead’s successful stock picking has produced annualized returns of 24.7%.

Vanguard Dividend Growth Fund (VDIGX). This fund focuses on -stocks of giant companies that are increasing their dividend payments annually. Because it replaces just 11% of its portfolio each year, on average, its tax efficiency shines. High-bracket fund investors lost just 0.36% due to taxable distributions over the past 10 years, and the fund had a 10-year annualized return of 8.5%, versus 7% for the S&P 500.