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ETF Specialist

ETFs and Taxes: Issues and Opportunities

Inside ETFs conference hosts panel of financial advisors to discuss tax issues.

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While ETFs are generally tax-efficient investment products, there are some strategies investors can follow to minimize the tax liability of their portfolio beyond just using ETFs. Additionally, investors should be aware that certain exchange-traded products are less tax efficient than others. At the Third Annual Inside ETFs Conference hosted by IndexUniverse.com, we attended a panel presentation by financial advisors entitled "ETFs and Taxes: The Issues and Opportunities" to hear some of these ideas.

The first panelist to speak, Curt Lyman, senior managing director at HighTower, started his presentation by saying that rising tax rates are inevitable, given the current deficit situations in public budgets. He strongly advocates the use of ETFs as investment vehicles, which tend to be more tax-efficient relative to their mutual fund cousins due to ETFs' in-kind creation and redemption structure. He also highlighted that over the past few months, ETF providers have launched a number of products that can help investors better execute tax-planning strategies, and he expects this product category to continue to grow in the near term. Earlier this year, iShares launched a family of municipal-bond ETFs that will liquidate and return assets to shareholders at a target date, the first of its kind. In general, municipal-bond ETFs are far more liquid than individual muni bonds, and serve as good building blocks for bond ladders and more effective cash flow planning.

Patricia Oey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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