IndexIQ, the exchange traded funds issuer behind a unique suite of hedge fund a commodities ETFs, said that none of its funds will distribute 2013 capital gains to investors.
“One of the unique advantages of the ETF structure over a typical hedge fund is that it helps minimize the tax burden on investors through the ETF creation and redemption process,” said Adam Patti, chief executive officer of IndexIQ, in a statement. “Hedge funds can be highly tax inefficient, and they often employ strategies that generate significant short-term capital gains. This tax burden can dramatically reduce real returns, something investors should keep in mind as they determine the most efficient way to build portfolios and allocate assets.”
Two of the firm’s hedge fund strategy ETFs, the IndexIQ Hedge Multi-Strategy Tracker ETF (NYSEArca: QAI) and the IndexIQ Hedge Macro Tracker ETF (NYSEArca: MCRO), have yet to distribute capital gains in their five years of trading.
Most ETFs do not distribute capital gains to investors, which contributes the superior tax efficiency of the asset class over mutual funds. When mutual fund managers close a profitable trade, the tax liability is absorbed by investors, not the fund sponsor.
On Monday, Charles Schwab none of its ETFs will make 2013 capital gains distributions and last week, PowerShares said that only a small amount of its expansive ETF lineup will make capital gains distributions in 2013. [No 2013 Cap Gains for Schwab ETFs]