By Mark DeCambre
“ETF shareholders mostly realize capital-gains taxes when they choose to sell their shares, so without protecting in-kind transactions from taxation, long-term investors would be hurt when others sell,” Invesco wrote in a statement.
BlackRock, a fund behemoth, said that the “in-kind” taxation proposal raises concerns for them.
“We would be concerned about policies that would raise costs and reduce returns for long-term investors and retirement savers, and are carefully reviewing Senator Wyden’s proposal to better understand how it will impact millions of long-term investors,” the company said.
The ICI explained that Wyden’s tax proposal is more harmful to ETFs than mutual funds, which also use in-kind redemptions and creations, because they do far more in-kind redemptions.
“ETF shares are created and redeemed in large blocks in transactions between funds and large financial institutions known as authorized participants,” the ICI statement notes.
ETFs are dead?
Dave Nadig, director of research and CIO at ETF Trends, ETF Database, told ETF Wrap that although the proposal, if it is realized would represent “a significant blow to the advantage ETFs have traditionally enjoyed vs. mutual funds,” he sees ETFs still maintaining a number of benefits.
Those benefits include “generally cost, flexibility and tradability, transparency,” wrote Nadig.
“So it’s hardly a ‘ETFs are dead’ situation. It just removes one particular advantage,” Nadig said.
That said, while wealthy investors may be able to deal with the proposed tax changes, average Joes and Janes would be saddled with the burden of paying the added costs.
“I get that it’s an attractive argument that we’re ‘taxing the rich’ here, but honestly, the ETF brought a clean, well understood tax-advantaged structure to any investor with $100 and a Schwab account,” he said.
“High net worth investors have always had access to structured products, LLCs, pass through entities and countless other structures to avoid near term gains inside a defined trading strategy,” he said.
Who owns ETFs
According to the ICI, nearly 12 million U.S. households own ETFs. The median income of these households is $125,000 and 92% of all ETF-investing households make less than $400,000.
Goldman’s Cathie Wood killer?
Goldman Sachs just launched an ETF targeting the next generation of technology companies, outside of the most popular companies already being bandied about. The fund sounds similar some of those on offer from Cathie Wood’s roster of ARK Invest funds and perhaps is intended to take some market share from ARK with a target on lower-profile companies.
MarketWatch colleague Christine Idzelis reports that the actively managed Goldman Sachs Future Tech Leaders Equity ETF /zigman2/quotes/229497602/composite GTEK -1.73% will invest in listed companies with a market value of less than $100 billion and the fund will trade under the ticker symbol “GTEK.”
“We’re now at a key inflection point where that innovation is expanding beyond the U.S. and down the market-cap spectrum,” Sung Cho, a GTEK portfolio manager told MarketWatch.
A number of fund providers have been attempting to ride the wave of new, groundbreaking technology. Less than a month ago, so-called The Future Fund LLC launched the actively managed Future Fund Active ETF /zigman2/quotes/229058257/composite FFND -2.06% .
“We’re looking for transformational opportunities that could develop over the next several years.” wrote David Kalis, CFA, partner at The Future Fund.
The race to fee bottoms
Rosenbluth notes that there are approximately 80 U.S. listed ETFs charging a minuscule fee of 0.05% or less. However, CFRA makes the case that fees shouldn’t be the sole criteria that investors base their fund selections. The composition of the fund and the record are something to consider as well.
“CFRA believes all things being equal, investors should consider the cheap ETFs in a broad investment style. But with ETF investing, things are usually not equal,” the analyst writes.
Good ETF reads
This Crypto ETF Could Help Grow Any Retirement Account (Motley Fool)
—That’s a Wrap