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Contributed by mm | January 29, 2007 8:44 PM PST
Mutual fund rating company Morningstar explains why ETFs are usually more tax efficient. At the top of the list: lower turnover because ETFs are usually index funds instead of actively managed funds.
From Morningstar:
A variety of factors should make distributions rare, though: ETFs are currently all index funds, which--for the most part--have lower turnover than actively managed funds. This helps limit their realization of capital gains. ETF investors also trade shares among themselves, not with the fund, so ETF managers don't have to sell securities to pay off redeeming shareholders. Only large investors, known as authorized participants, deal directly with the funds, and ETFs can satisfy those redemptions by giving those large investors baskets of their underlying portfolios' stocks instead of cash. Finally, ETF managers also can use that in-kind redemption process to get rid of the stock shares with the biggest unrealized gains, thereby limiting the ETF's potential for distributing gains.
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ETF or Mutual Fund. Who Is The Winner? (May 12, 2007)
WSJ added another featured story to the neve-eding comparison of ETFand index-tracking mutual fund performance. The result? Based on Morninstar's calclation, mutual funds stay ahead in most of the games.
Do We Have Too Many ETFs? (February 25, 2007)
I love the phrase "ETF pollution." People are crafting too many ETFs for exotic strategies, and some ETFs are simply designed to be short-lived. For ETF operators, it is becoming a casino of whose strategy will be most favored by the market for longer.
Best ETF for 2007 (November 22, 2006)
Vanguard Emerging Markets Index (VWO) was named the best ETF for 2007 by Fool.com
How To Short The Market Using ETF? (October 22, 2006)
Proshares is creating some new ETF tools for those who want to bet big in major indices. You can either bet against the market bulls using the "Short Proshares", or chasing double the return (and suffering double the loss if market goes south) using the ...
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