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Portfolio > Mutual Funds

Barclays Global Declares Estimated Year-End Distributions

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ETF investors will have something millions of mutual fund investors won’t have for 2008: lower tax liabilities.

According to early reports, ETF tax gain numbers are already starting to confirm this.

Barclays Global Advisors (BGI) has already reported that only two out of 178 iShares funds are expected to pay out year-end capital gains.

“In a challenging year such as this one, taxes matter more than ever and iShares ETFs continue to prove their tax efficiency,” said Lee Kranefuss, global CEO of BGI’s Intermediary and Exchange Traded Funds Business. “Many actively managed fund investors are likely going to get a double whammy of underperformance and capital gains this year,” added Kranefuss. “A lot of the gains are being logged this year as the result of investor redemptions that forced portfolio managers to liquidate positions.”

The sole iShares funds to declare preliminary tax gain distributions are the iShares Cohen & Steers Realty Majors Index Fund (ICF) and iShares Lehman Short Treasury Bond Fund (SHV). ICF has an estimated long-term gain of 0.35 to 0.45 cents whereas SHV has an estimated long and short term gain of just 0.01 cents respectively.

Lipper’s research shows that approximately 3 percent of the market value of actively managed mutual funds was paid out via capital gains in 2007, whereas iShares paid out less than 0.02 percent of the market value of its ETFs last year.

Since ETF investors buy and sell their shares on a stock exchange and not with a fund company, it doesn’t trigger capital gains for anyone except the selling investor. Also, exiting shareholders do not cause an ETF to incur portfolio transaction costs. On the other hand, an actively managed mutual fund may be forced to liquidate a fund’s securities in order to meet the demands of exiting shareholders. This has the possibility of creating unwanted capital gains consequences for all remaining shareholders at year-end.

Ron DeLegge is the San Diego-based editor of


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