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.
Generally, fixed-income ETFs are not as tax efficient as the stock-based funds.
Some bond ETFs will have to distribute capital gains distributions for 2011. Still, most of the distributions are below 1% of the funds’ net asset values. [ETFs and Tax-Loss Harvesting]
A number of ETF providers have announced annual capital gains distributions. Many firms have zero capital gains for their ETFs:
- Deutsche Bank‘s db-X
- Global X
- Russell ETFs
- State Street Global Advisors
- Van Eck Global
For more information for taxes on ETFs, visit our taxes category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.