Only 2 iShares Pay Capital Gains in 2008

Barclays Global Investors (BGI) just announced that out of its iShares family of 178 ETFs, only two are paying out capital gains this year.

The iShares Cohen & Steers Realty Majors Index (ICF) expects to pay out long-term capital gains in the range of 35 cents to 45 cents per share. That’s 0.74% to 0.94% of the net asset value. There are no short-term capital gains.

The iShares Lehman Short Treasury Bond ETF (SHV) will pay out a short-term capital gain of 0.74 cents per shares. This is payable on Friday, Dec. 5.

This highlights one of the key benefits ETFs hold over mutual funds — greater tax efficiency. This comes about because of the ETF’s structure. Every time a mutual fund buys or sells a security, it creates a taxable event. ETFs don’t purchase or sell the stock in their portfolio, specialists and brokers that are registered as authorized participants do. I will delve into this in more detail later.
According to Tom Roseen of Lipper, “in 2007, approximately 3% of the market value of actively managed mutual funds was paid out via capital gains.” BGI says last year iShares paid out less than 0.02% of the market value of the iShares ETFs.

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