Thanks for sharing the numbers. I think @assemblyrequired did a post sometime to compare some world ETFs but I think that was more about costs of investing and expected tax loss. Maybe @assemblyrequired can tag the thread as I can’t find it
Side note -: Since you are trying to compare the cases where DA-1 is not relevant anymore, I think IE based ETF WEBG world ETF should be considered as an alternative.
TER -: 0.07%
Tax drag should be similar to VWRP
Exposure -: Solactive Global Large & Mid cap
Alpha Architect (who makes the BOXX etf) has filed for some new etfs specializing in tax optimization:
Especially the two anti-dividend funds could be interesting for us. It essentially sells stocks right before dividend distributions. There is also apparently some research suggesting that stocks are slightly overpriced before the dividend distribution and dip slightly below fair value after the distribution. Although this part is for sure the lesser effect, compared to the tax savings.
Also interesting would be the 1-3 year Box etf, as a basically tax free shorter term bond etf.
Seems more likely to be taxed as dividend, unlike the box spread they’re not doing options, right? Just buy/sell around ex-dividend dates? (which the tax office tends to to clearly consider as tax avoidance)
(but worst case you get similar taxation as an ETF that holds the stock all along)
You also need to trust the ETF provider which is not as established as vanguard/blackrock. E.g. I’m not sure what to think about the fact they ended up distributing dividend on BOXX (even if it might be 100% capital gain distribution for us)
For me i think it might be a good product for US consumers because there both dividends and capital gains are taxed
For CH, tax office might not appreciate such gimmicks
Although I think it’s an interesting concept. Jury would be out if they actually deliver the results or end up losing out due to some sort of market timing
I think the biggest issue is not technical - but the fact that it is small so you have liquidity/spread issues. I don’t see myself using any of their longer duration products - I’d rather pay the tax and ensure liquidity.
This shouldn‘t affect us, as it‘s the fund doing it.
In the SEC filing they are also clear on what the strategy is. They cite research that stocks are overvalued before ex-date and undervalued on/after ex-date. That‘s the main point. Probably just a way to justify the existence of the fund and the SEC not shutting it down, due to the tax avoidance.
If the SEC gives the OK, it‘s all clear.
On BOXX distribution: This was always a possibility and was communicated beforehand. Even then the total distribution was like 0.5%. Considering the yield that‘s still way more tax efficient than t-bills. And actually this might even be beneficial for us, as ictax now has some distribution to classify. The fund running without any distribution might trigger them to invent a virtual dividend.
With a synthetic fund they purposefully replicate another gross index specifically including dividends.
This is a specialized product with a custom stock strategy. They will also guaranteed not try to replicate an index just without dividends.
How would they even attempt to tax that legally. They literally dont hold the stocks for a certain amount of time where all kinds of price movements could happen, different from the dividends.
The fund also incurs transaction costs etc.
They would literally need to look into every single transaction of every single stock they sell and buy and calculate the relative dividend amount that would be avoided there.
Also I imagine there will still be some very small amount of dividends left and they wont sell every single stock every time before ex-date.
We will see how it fares in the end. First needs some aum. But I‘m very confident that there will be nothing like a virtual dividend for us on the tax side. I just see no way for that.
I think if tax office wants, they can start classifying short term capital gains incurred by such funds as taxable income. Normally in annual reports , there is a clear segmentation of information about dividend income, STCG and LTCG.
Not sure if they would go to this extent though.
The tax treatment would need to be same as for any actively managed fund where multiple trades happen with significant turnover of positions. In the end this strategy is like active management of funds. The tax treatment cannot be different vs actively managed equity funds
Yes. I agree. They need to be fair and consistent. Just because a fund decided to buy and sell based on dividend payment dates doesn’t mean they need to be taxed differently versus funds that buy/sell whenever they want
I don’t know what this means exactly. But this fund should have quite a bit of capital gains / loss because of continuous trading. And eventually ETF holder would also receive those gains, isn’t it?
With in-kind transfers the etf exchanges the holdings with the auhtborized participant against cash. But this is not selling and no gains are realized here. I‘m just not sure to what an extent you can do that with single securities.
That‘s also the main reason why etfs even exists and have advantages over mutual funds in the US. They prevent cap gains distributions when creating/redeeming shares, that can happen with mutual funds.
There is also all kinds of tax magic these funds can do internally to offset gains with losses.
That‘s why basically no stock etf ever has distributions no matter the turnover.
I‘d need to check some of their other funds, like their momentum funds with huge turnover, how they handle it there.
Stuff like that is AAs main selling point though. One of their core businesses is also turning smas/mutual funds into etfs, while being tax efficient.
Also dont get me wrong I don‘t want to sound like shilling for them haha. I‘m personally not even invested yet with them. Just recommended BOXX/CAOS to others so far.
I always thought that capital gains (through buying and selling of underlying stocks) generated by Funds need to be distributed to the shareholders of the funds and ETFs. But seems I don’t fully understand this.
Depends. You can also later offset them with capital losses.
Also you can prevent them in the first place with the in-kind transfers.
Example: A market maker/authorized participant redeems a batch of shares because people sold 1000 shares of fund X.
The AP gives the sellers their cash throigh the broker.
The fund then takes the shares with the most gains on them and transfers those to the AP, and the AP delivers the empty shares back to the fund “destroying” them with them originally containing these stocks.
No gains realized anywhere and shares with lots of capital gains on them not in the fund anymore.
AFAIK, it’s even better. Once shares are exchanged by ETF against ETF units, there capital gains are eliminated for the counterparty receiving the shares. See “heartbeat trades”, also in this forum.
IMHO, they should’ve picked an obscure name and description. Calling it an “anti-dividend” will make the tax authorities look into it and reclassify with 99% certainty.
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