Taxes May Be a Bigger Deal Than Alpha, This Fund Manager Says

Joe Huber is a big investor in mutual funds.

The founder and chief executive officer of El Segundo, Calif.-based Huber Capital Management runs four funds he invests in, so it’s a safe bet he’s a fan of those. But there’s one thing he’s never liked about the investment format in general. U.S. mutual funds get kind of a raw deal from the government: “You have to pay taxes on capital gains every year—short-term, long-term capital gains,” Huber says, even if you don’t sell your fund shares.

Why is that? As regulated investment companies, mutual funds aren’t subject to tax, provided ...