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:
- AdvisorShares
- Deutsche Bank‘s db-X
- Direxion
- FirstTrust
- Global X
- Guggenheim
- IndexIQ
- iShares
- PIMCO
- PowerShares
- ProShares
- RevenueShares
- Russell ETFs
- Rydex|SGI
- Schwab
- State Street Global Advisors
- Van Eck Global
- Vanguard
- WisdomTree
For more information for taxes on ETFs, visit our taxes category.
Max Chen contributed to this article.