Skip to Content
Commentary

ETFs Are Tax Efficient, but Is That Sound Policy?

ETFs are privileged by happy accident, and it's poor public policy to favor them over mutual funds.

Most investors know that exchange-traded funds are often more tax-efficient than mutual funds. A subset of those know that this is because ETFs use a primary market in which shares are created (or redeemed) in exchange for a basket of securities by a special breed of market makers known as authorized participants. These in-kind transfers allow ETFs to avoid the capital gains that mutual funds would incur by selling appreciated securities, which are in turn taxed if they are held in a taxable account.

This raises a question: Since investors respond to incentives, should policymakers be incentivizing ETFs over traditional open-end mutual funds? Is the structure of an ETF so desirable that the government should a send a strong signal to invest in ETFs instead of mutual funds?

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.