Happy Thursday! Exchange-traded funds have been referred to as one of the best financial innovations and the greatest success story in markets over the past few decades. There are many solid attributes to ETFs that are enjoyed by individual investors and institutions alike but one important benefit, the tax efficiency, could be stripped away from the funds, delivering a potentially damaging blow to the industry, experts told ETF Wrap.
We’re going to talk about the implications of a proposal coming out of Washington, D.C. that has raised the hackles among large and small ETF providers alike. We’ll also touch on a new ETF on offer by Goldman Sachs that our colleague Christine Idzelis is reporting on.
As per usual, send tips, or feedback, and find me on Twitter at @mdecambre to tell us what we need to be jumping on. Sign up here for ETF Wrap.
The good and the bad
| Top 5 gainers of the past week | %Return |
|
NorthShore Global Uranium Mining ETF URNM, |
15.1 |
|
Global X Uranium ETF URA, |
9.2 |
|
VanEck Oil Services ETF OIH, |
3.9 |
|
VanEck Rare Earth/Strategic Metals ETF REMX, |
3.4 |
|
Invesco Dynamic Semiconductors ETF PSI, |
|
| Source: FactSet, through Wednesday, Sept. 15, excluding ETNs and leveraged products. Includes NYSE, Nasdaq and Cboe traded ETFs of $500 million or greater |
| Top 5 decliners of the past week | % Return |
|
AdvisorShares Pure US Cannabis ETF MSOS, |
-7.1 |
|
KraneShares CSI China Internet ETF KWEB, |
-6.8 |
|
ETFMG Alternative Harvest ETF MJ, |
-6.3 |
|
Emerging Markets Internet & Ecommerce ETF EMQQ, |
-5.1 |
|
Invesco China Technology ETF CQQQ, |
|
| Source: FactSet |
An ETF death knell?
U.S. Senate Finance Committee Chairman Ron Wyden’s proposal aims to tax the ETF industry. As our readers well know, ETFs are baskets of securities that are as easy to trade as a stock and appeal to average investors for its convenience if not also for its tax efficiency.
ETFs defer taxes with so-called in-kind transactions.
The inherent tax efficiency of an ETF, which usually is constructed to mimic the performance of index and tends to be low-cost for that reason, is the direct result of the in-kind redemption of shares and creation of new ones. Currently, in-kind tax treatment is governed by section 852(b) (6) of the Internal Revenue Code, and provides that the creation of new ETF shares and the redemption of old ones isn’t a…
Read More: Why the $5.4 trillion ETF market faces its biggest crisis since