While most ETFs shield investors from capital gains and the associated tax bill, a few funds were unable to avoid the problem that plagues most mutual funds.
In the article Capital Gains Hit Some ETFs, the Wall Street Journal’s Ian Salisbury reports that the industry’s largest fund manager, Barclays, expects to pay out year-end distributions on just 2 of its 178 funds. State Street will likly distribute gains on only 3 funds and Invesco PowerShares, Vanguard and Wisdomtree also have clean records.
However, a handful of funds from Rydex Investments will pay out large distributions. The Rydex Inverse 2x Select Energy ETF (REC) and the Rydex Inverse 2x S&P Select Sector Technology ETF (RTW) will both pass out gains in excess of 50% of net asset value.
The large distributions are caused by the nature of the funds’ underlying investment vehicles which include futures and swaps contracts.