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TAX RESOURCES
MANAGE YOUR TAX COSTS
Investors know that exchange traded funds (ETFs) offer low fees and liquidity, but many overlook another key benefit: tax-efficiency. iShares ETFs can help investors build tax-aware portfolios and keep more of what they earn.
How are ETFs tax efficient?
Structure
Unlike mutual funds, ETFs generally don’t sell securities to raise cash to meet redemptions. They instead employ an “in-kind” mechanism that allows them to meet redemptions without selling securities and realizing capital gains.
Strategy
Nearly all U.S. ETFs seek to track the performance of an index. Index funds typically trade less frequently than active strategies, resulting in fewer capital gains distributions than most active funds.
iShares builds ETFs with taxes in mind
Amy Whitelaw, Head of Americas iShares ETF Portfolio Engineering, discusses iShares’ differentiated approach to building tax-efficient ETFs.
Taxes: A bigger drag than management fees
The potential effects of taxes can be more detrimental to portfolio returns than fees. Over the past decade, the average annual fund tax cost for U.S. large cap equity mutual funds was almost twice that of their average fund expense ratio (1.77% vs. 0.91%).1 Yet ignoring this tax drag can be costly.
Improve tax efficiency with iShares Core ETFs
Zero iShares Core Equity ETFs paid capital gains distributions over the past 5 years, compared to 66% of active equity mutual funds.3 Keep capital gains distributions from eroding your profits with iShares Core ETFs.
Looking to tax loss harvest?
Input a fund from any fund provider and explore iShares ETFs based on correlation and holdings overlap data. (for financial professionals only)
1Morningstar as of Dec. 31, 2019. Tax Cost measures how much a fund's annualized return is reduced by the taxes investors pay on distributions (Difference between total annualized pre and post-tax returns over 10 years.) Data calculated using the oldest share class of all Active US large cap Equity Open-End Mutual Funds available in the U.S. 1.77% figure is the difference between total annualized pre-tax and post-tax (pre-liquidation) returns over 10 years for all Active US large cap Equity Open End Mutual Funds available in the U.S .
2BlackRock. The chart is for illustrative purposes only and is not indicative of the performance of any actual fund or investment portfolio. Does not include commissions or sales charges or fees. 12% represents the average pre-tax return over the same 10 year period for large cap equity mutual funds (12.08%). The hypothetical growth of $100,000 over ten years at an 12% return is $310,584.81. The hypothetical growth over ten years at an 12% return with a 1.77% tax cost is $264,848.84, resulting in a tax cost of $45,735.98.
3Morningstar, as of 6/30/2020. Average number of mutual funds that paid a capital gain distribution each year over 5 years. Universe includes all U.S. open ended mutual funds, oldest share class used. Universe includes all funds incepted before 10/31 in each year and excludes funds that closed before 10/31 in each year. Past distributions are not indicative of future distributions.
For more information on the differences between ETFs and mutual funds, click here.
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares Fund and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
Transactions in shares of ETFs may result in brokerage commissions and will generate tax consequences. All regulated investment companies are obliged to distribute portfolio gains to shareholders.
Shares of iShares ETFs may be bought and sold throughout the day on the exchange through any brokerage account. Shares are not individually redeemable from the ETF, however, shares may be redeemed directly from an ETF by Authorized Participants, in very large creation/redemption units.
Certain traditional mutual funds can also be tax efficient.
Investment comparisons are for illustrative purposes only. To better understand the similarities and differences between investments, including investment objectives, risks, fees and expenses, it is important to read the products' prospectuses.
The information provided is not intended to be tax advice. Investors should be urged to consult their tax professionals or financial advisors for more information regarding their specific tax situations.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, "BlackRock").
© 2020 BlackRock, Inc. All rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, BUILD ON BLACKROCK, ALADDIN, iSHARES, iBONDS, FACTORSELECT, iTHINKING, iSHARES CONNECT, FUND FRENZY, LIFEPATH, SO WHAT DO I DO WITH MY MONEY, INVESTING FOR A NEW WORLD, BUILT FOR THESE TIMES, the iShares Core Graphic, CoRI and the CoRI logo are registered and unregistered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.
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