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M*: ETF Or Traditional Index Fund: Which Is More Tax-Efficient? Text & Video Presentation

FYI: Investors have gravitated to exchange-traded funds for a variety of reasons, including tax efficiency. Joining me to share some research on the tax efficiency of various fund types is Ben Johnson. He's director of global ETF research for Morningstar.


  • This is a really interesting question, but this article is a disappointing quasi-answer. Ben and Christine spend too much time talking about low-probability situations and muddying the whole issue.
    I think the final conclusion is
    "ETFs .... tend to make far more regular use of their ability to redeem in-kind than do traditional mutual funds. And that really is the linchpin of their tax efficiency, the ability to lift securities out wholesale, not actually transact in them, which might involve unlocking some embedded gains."

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