A key benefit of ETFs is their ability to minimize taxable events—often more effectively than mutual funds. This allows investors to retain more of their returns over time.
This efficiency comes from the in-kind creation and redemption process, where authorized participants exchange baskets of securities for ETF shares (and vice versa) without triggering taxable sales inside the portfolio.
By rebalancing through in-kind transfers, ETFs can maintain index or strategy alignment while avoiding unnecessary taxable transactions. As a result, ETFs tend to distribute fewer capital gains to shareholders, giving investors more control over when they realize taxable events—typically only when they sell shares.
Not all ETFs are equally efficient. A fund’s investment strategy, turnover rate, and trading activity can influence how often gains are realized. For example, actively managed ETFs may have slightly higher turnover and therefore higher tax exposure.
At New York Life Investments, we integrate tax efficiency into ETF design from the start—helping investors pursue enhanced after-tax results without compromising diversification or long-term goals.
All investing involves risk, including possible loss of principal.
This material contains general information only and does not take into account an individual’s financial circumstances; is intended to be educational and informative in nature; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial professional before making an investment decision. The information discussed is strictly for educational purposes and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
