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.