As the national debate about taxes, spending, and “fairness” rages on, wealthy investors are justifiably concerned about what this means for their after-tax returns. We can expect that our clients are going to be asking a lot more questions about tax efficiency in the coming months and years. With that in mind, consider the good news released by PowerShares this past week:
CHICAGO – December 18, 2012 – Invesco PowerShares Capital Management LLC, a leading global provider of exchange-traded funds (ETFs), announced today that it expects to deliver zero long-term capital gains distributions across 120 of 123 equity and fixed-income ETFs for 2012.
“At Invesco PowerShares we are proud of our product line’s tax efficient track record,” said Ben Fulton, Invesco PowerShares managing director of global ETFs. “For the tenth consecutive year, we are pleased that the vast majority of PowerShares ETFs did not deliver capital gains distributions. This accomplishment highlights one of the many advantages ETFs can potentially provide shareholders seeking to maximize real returns.”
We are pleased to announce that the four ETFs in the PowerShares DWA family of Technical Leaders ETFs (PDP, PIE, PIZ, and DWAS) are among the ETFs that are expected to deliver zero long-term capital gains distributions in 2012. In fact, PDP is now coming up on six years since its inception and it has not delivered a capital gains distribution in any of those years. And, it has outperformed the S&P 500 since inception.
That is not a bad combination: Delivering alpha through the investment process AND delivering tax-efficient alpha through the ETF structure.
For a review of the way that ETFs are able to provide tax efficiency, consider the following from PowerShares’ website:
How do ETFs deliver tax efficiency?
Taxes may be one of the most critical and yet overlooked factors in wealth creation over time as they can erode even the best fund’s returns. Because of their unique structure, ETFs may serve as a tax-efficient investment tool for shareholders who wish to defer capital gains until the point of sale.
While it is not Invesco PowerShares intention, there is no guarantee that the Funds will not distribute capital gains to its shareholders. Invesco Powershares does not offer tax advice. Please consult your own tax advisor for information regarding your own tax situation.
How is the in-kind redemption process unique?
PowerShares ETFs use a LI-FO (lowest in – first out) in-kind tax management strategy unique to ETFs. This method typically allows the fund manager, during the creation and redemption process, to purge the lowest cost basis stocks through in-kind, no-taxable stock transfers. This unique operational trait leaves the fund with the highest cost basis securities, which systematically reduces tax exposure.
See www.powershares.com for more information. Past performance is no guarantee of future returns.