Tax Hit for Some Bond ETF Investors

The WSJ‘s Ian Salisbury is reporting that investors in some bond ETFs will be taking a tax hit for 2009.

According to Salisbury, BlackRock’s iShares, State Street and Vanguard all have some ETFs passing out capital gains for 2009. One of the largest gains, almost 12% of the value of a share, is the being handed off by The Vanguard Extended Duration Treasury Index ETF (EDV).

One of the major advantages of investing with exchange traded funds is their tax efficiency.

Typically, ETF shares are created using a tax-free cashless exchange of assets. However, the unusually heavy bond trading in 2009 forced managers to incur some trading gains as a way to better track the fund’s index.

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