In the weeks to come, we will dig deeper into where these net inflows are going. Here’s a hint: We believe equity investing is alive and well, depending on where you look.
Jonathan Steinberg is the chief executive of WisdomTree. This post was republished with permission from the WisdomTree blog.
1Abner, David, The ETF Handbook, Hoboken: John Wiley & Sons, Inc., 2010.
2The creation/redemption mechanism of ETFs is what allows them to be very tax efficient. Specifically, when portfolio holdings can be transferred on an “in-kind” basis during redemptions, it allows ETFs to be very tax efficient and able to minimize their capital gains distributions. The reason: When shares are redeemed in-kind, the ETF is not liquidating or selling shares on the market, which would trigger gains inside the ETF; rather, with in-kind redemptions, an exchange is made between qualified institutional investors and the fund company—in exchange for shares of the ETF, the qualified institutional investor receives underlying holdings of the fund on an in-kind basis, and this swapping of holdings for ETF shares does not trigger a taxable event for the fund.
3Source: ETF Industry Association, www.etf-ia.com.
4Long-term flows: Allocations into investment products with an average holding period of greater than one year. Source: Investment Company Institute.
5Hybrid funds: A category of mutual fund that is characterized by portfolios that are made up of a mix of stocks and bonds, which can vary proportionally over time or remain fixed.