Tax efficiency is one of the major selling points of exchange traded funds. Therefore, it’s important for investors to keep track of any year-end capital gains distributions to see if ETFs are living up the promise.
Mutual funds and ETFs in December usually announce capital gains distributions that can lead to a tax bite for shareholders who hold the fund in a taxable account.
However, the “in-kind” creation and redemption feature of ETFs can provide protection from tax hits. [ETFs and Taxes]
“Tax efficiency is one of the advantages that ETFs offer to investors,” said Greg Friedman, managing director of Russell’s global ETF product group.