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?

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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.

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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)