ETF structure delivers superior tax alpha
The guest argued that the structural tax efficiency of ETFs provides a significant 'tax alpha' that often outweighs the benefits of trying to beat the market through active stock selection.
The argument
Unlike mutual funds, ETFs utilize custom rebalancing, creations, and redemptions to avoid passing capital gains distributions to end investors. The guest noted that major ETFs like SPY have not paid a capital gains distribution in thirty years.
The thesis, stress-tested
✓ What validates it
- ✓Annual tax reporting showing zero capital gains distributions for selected ETFs
▸ Risks discussed
- ▸Changes to tax laws regarding the ETF creation and redemption tax exemptions
Hear it yourself
"They got into p ratios of fifty and sixty and then you had the biggest decline we ever had in US stocks went down 80. 80%, over 80. But the point there is not that, you know, you're gonna have a crash. Everyone's always crash fearful. Right? But the point is you had this resilience over very long periods in this creative destruction of capital markets. It's great. It's a feature. One of my favorite charts over time is the top 10 stocks in the world every decade. Right now, that's a lot of The US tech. You go back a decade ago, there was a lot of Chinese companies. You go"
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