Tax efficiency is one of the hallmark benefits of exchange-traded funds.
Unlike traditional open-end mutual funds, which redeem shares for cash, requiring funds to sell securities and potentially realize capital gains, most ETFs continually dodge the capital gains tax bullet by redeeming securities in kind. This allows ETF providers to swap out low-cost-basis securities without having to realize as many capital gains.
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Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.