By Solomon G. Teller, CFA, Chief Investment Strategist
For the past few years, ETF management fees have been on the decline. My friend Elisabeth Kashner at Factset recently showed that ETF holding costs across all major strategies, including actively managed, have been steadily falling – see chart.
For instance, fees on Strategic ETFs, also known as “smart beta”, fell 25% from an asset weighted average of 0.28% to 0.21%. These declines are good news for ETF investors as falling ownership costs along with ETFs’ tax efficiency only improve the attractiveness of using ETFs as building blocks for improving after-tax returns. After all, what matters is not just what you make but what you keep.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when the portfolio is liquidated. Current performance may be higher or lower than that quoted. Performance of an index is not illustrative of any particular investment and does not include the impact of advisory fees. It is not possible to invest directly in an index.
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Reasons to harvest capital losses, sources of capital gains and the suggestion that mutual funds distribute capital gains are for illustrative purposes only. The availability of tax alpha is highly dependent upon the initial date and time of investment as well as market direction and security volatility during the investment period. Tax loss harvesting outcomes may vary greatly for clients who invest on different days, weeks, months and all other time periods. A client’s tax alpha will depend on the client’s individual circumstances, which are outside of GHAM’s knowledge and control.
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