For investors, one of the most appealing aspects of exchange-traded funds is their clear tax efficiency.
To start with, many passive funds inherently are low-turnover vehicles, with a minimal amount of concentrated buying and selling of specific securities. In addition, because ETFs have the ability to redeem securities in-kind, their managers often can dodge the capital gains bullet by swapping out low-cost-basis securities without having to realize large amounts of capital gains, if any.
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Robert Goldsborough does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.