While equity exchange-traded funds have a clear edge over actively managed stock funds on tax efficiency, the picture is slightly different for fixed-income funds. Here, I'll discuss some of the important issues investors should keep in mind when assessing the tax efficiency of fixed-income ETFs.
As is the case with stock ETFs, market-cap-weighted index funds account for the lion's share of fixed-income ETF assets. These funds' turnover tends to be lower than their actively managed mutual fund peers. They share this common source of tax efficiency with their counterparts in the stock space.
Phillip Yoo, CAIA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.