IndexIQ, the New York-based ETF sponsor known for its hedge fund replication and small-cap offerings, said on Thursday that none of its 11 ETFs will pay capital gains distributions to investors this year.
Distributions are paid to investors from the capital gains of the firm's investment portfolio. For example, when a mutual fund manager turns a profit on a trade and closes the position, the fund's shareholders, not the sponsor, are saddled with the tax liability.
Most ETFs do not distribute capital gains to investors, which makes the asset class typically more tax efficient than mutual funds.
"One of the unique advantages of the ETF structure over a typical hedge fund is that it helps minimizethe tax burden on investors through the ETF creation and redemption process," said Adam Patti, chief executive officer of IndexIQ, in a statement. "Hedge funds can be highly tax inefficient, and they often employ strategies that generate significant short-term capital gains. This tax burden can dramatically reduce real returns, something investors should keep in mind as they determine the most efficient way to build portfolios and allocate assets."
The IndexIQ announcement follows similar news from other ETF issuers. Last month, iShares, the world's largest ETF sponsor, said just five of its 280 ETFs will pay capital gains distributions this year.
WisdomTree (WETF) said there will be no capital gains on its 35 equity ETFs while Van Eck's Market Vectors unit has said the bulk of its ETF lineup will not pay capital gains this year, either. ProShares, the largest issuer of leveraged ETFs, said none of its 117 equity and fixed income ETFs will pay any 2012 capital gain distributions. Some of IndexIQ's more well-known products include the IndexIQ CPI Inflation Hedge ETF (NYSE: CPI) and the IndexCanada Small Cap ETF (CNDA).
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