Well, that's because the mutual funds you compared have been net buyers. When funds have more inflows than outflows, it's very easy to be tax-efficient. The problem comes if/when a mutual fund has to sell. When there are more outflows than inflows. At that time, a mutual fund has a lot of tricks up it's sleeve, but at some point the tricks will run out and they will be forced to pass CG's on.But in real life, the effect is getting lost in the noise... at least for the kinds of funds I invest in....ETFs have a larger tool-bag for avoiding capital gains distributions...
Smartphone X has 50 megapixels and Smartphone Y has only 48. That's an objective fact. It doesn't mean the Smartphone X actually takes sharper pictures, although in theory it should.
An ETF mostly never has to pass those gains on, because it can effectively trade appreciated shares for whatever it wants, without having to realize the gains.
So for the giant funds like FSKAX, VTSAX, etc, most of the time there will be no difference, but a large sell-off (say during a market crash), could lead to realized CG's even if you held on for dear life, like a good Boglehead.
That's all my understanding anyway.
When all is said and done, it's my understanding that the IRS is tax-neutral between the two, generally speaking. With an ETF the cap gains sit with the holder of the fund, i.e. you and me the retail investor. We get to decide when to realize those gains. With a MF, more people selling will cause *us* to have to pay the CG's even if we didn't sell. Annoying perhaps, but not the end of the world.
Statistics: Posted by zie — Fri Sep 27, 2024 7:50 pm