ETF Trends
ETF Trends

It has been a banner year of asset-gathering for Charles Schwab (NYSE: SCHW) as the brokerage giant continues cementing its status as one of the fastest-growing providers of exchange traded funds.

According to data, California-based Schwab had $38.5 billion in ETF assets under management as of Dec. 14, making it the seventh-largest U.S. ETF issuer.

In addition to Schwab’s low fees, which are among the lowest in the ETF industry, there is more good news for Schwab ETF investors: The company said there will be no 2015 capital gains distributions on any of its ETFs. That means 2015 marks the six consecutive year in which Schwab has had no capital gains distributions on its ETFs.

Many investors are attracted to the tax efficiency that ETFs provide, so we’re proud that Schwab ETFs have been able to meet this demand with no distributed capital gains since the first Schwab ETFs launched in 2009,” said Jonathan de St. Paer, Senior Vice President, Product Management, Charles Schwab Investment Management, in a statement. “At CSIM we seek to deliver tax efficiency and help investors achieve their investment goals with simple, low-cost products that deliver value.”

Few ETFs that issue capital gains distributions are seen as an outlier. The ETF structure would usually negate any taxable events when diminishing or increasing holdings. Specifically, many passive ETFs inherently have low turnovers. More importantly, ETFs have to ability to redeem securities “in-kind” where fund operators can sidestep capital gains by swapping securities for other securities without incurring large capital gains. [ETFs & Mutual Funds: Lump of Capital Gains in Your Stockings]

In contrast, traditional mutual funds typically redeem securities by selling off a position for cash, triggering a taxable event. [Worried About Year-End Capital Gains Taxes? ETFs May Help]

For the most part, ETFs that issue capital gains distributions typically experience greater trading activity, use futures contracts, see a significant change up in its underlying index or track fixed-income securities.

Specifically, leveraged and inverse ETFs that use futures contracts can incur capital gains distributions. Moreover, currency-hedged equity ETFs may see capital gains distributions, with  managers triggering gains by rolling currency futures and forward contracts hedges as the U.S. dollar strengthened this year.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. 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.