At a time when U.S. tax-payers are facing potential rate increases, many investors still misunderstand the tax implications associated with exchange traded funds (ETFs) according to a recent study conducted on behalf of BlackRock, Inc. (NYSE: BLK). Of the 845 end investors who own or share household financial investment decision-making responsibilities surveyed, 55 percent of respondents were not aware that an ETF could pay capital gains even if the security was not sold at a gain that year. 1 BlackRock also announced today that 98 percent of ETFs offered by its iShares ® ETF business are not expected to pay capital gains distributions. iShares is the largest manager of ETFs with 280 products listed in the United States. Over the last ten years, iShares has not paid capital gains 98 percent of the time. 2 “While ETFs can be highly tax-efficient investment products, many investors are surprised to find out that it’s possible to owe taxes on capital gains distributions made by ETFs even if they didn’t sell the security at a gain that year,” said Patrick Dunne, iShares Head of Global Markets & Investments. “When it comes to tax efficiency, investors need to be asking the right questions or they may get a surprise in their tax bill at the end of the year.” Capital gains in mutual funds and ETFs occur for the same reason they occur in individual portfolios—the fund has sold securities at a profit or generated income on holdings at some point during the year. Funds are required to distribute those gains, which are subject to taxes by the federal government, to shareholders by December 31 each year. Key questions to ask your financial advisor about the ETFs in your portfolio:
- What is the track record of my ETF holdings? Have they made capital gains distributions in the past?
- Which asset classes will be most likely to generate capital gains distributions this year? How can I find out if my ETF is paying out a capital gain?
- What should I do if I find out my ETF is paying out capital gains?
Only five of 280 iShares ETFs are scheduled to pay capital gains distributions this year:
|Fund(Ticker)||Estimated Total Cap GainDistribution ( % of NAV in bps)||Ex Date||DistributionDate|
|iShares Core Total U.S. Bond Market ETF (AGG)||35 – 44 bps||12/3/12||12/7/12|
|iShares Barclays GNMA Bond Fund (GNMA)||53 – 65 bps||12/3/12||12/7/12|
|iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD)||0 – 1 bps||12/3/12||12/7/12|
|iShares Barclays MBS Bond Fund (MBB)||19 – 23 bps||12/3/12||12/7/12|
|iShares Financials Sector Bond Fund (MONY)||45 – 55 bps||12/3/12||12/7/12|
About BlackRockBlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2012, BlackRock’s AUM was $3.673 trillion. BlackRock offers products that span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares® (exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. Headquartered in New York City, as of September 30, 2012, the firm has approximately 10,400 employees in 29 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company's website at www.blackrock.com. About iShares iShares is a global product leader in exchange traded funds with over 600 funds globally across equities, fixed income and commodities, which trade on 20 exchanges worldwide. The iShares Funds are bought and sold like common stocks on securities exchanges. The iShares Funds are attractive to many individual and institutional investors and financial intermediaries because of their relative low cost, tax efficiency and trading flexibility. Investors can purchase and sell shares through any brokerage firm, financial advisor, or online broker, and hold the funds in any type of brokerage account. The iShares customer base consists of the institutional segment of pension plans and fund managers, as well as the retail segment of financial advisors and high net worth individuals. Carefully consider the iShares Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses, which may be obtained by calling 1-800-iShares (1-800-474-2737) or by visiting www.iShares.com . Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Transactions in shares of the iShares Funds will result in brokerage commissions and will generate tax consequences. iShares Funds are obliged to distribute portfolio gains to shareholders. Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
An investment in the fund(s) is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.All registered investment companies, including iShares Funds, are obliged to distribute portfolio gains to shareholders at year’s end regardless of performance. Transactions in shares of the iShares Funds will also generate tax consequences and transaction expenses. The information provided is not intended to be tax advice. Tax consequences of dividend distributions may vary by individual taxpayer. To receive a distribution, you must be a registered shareholder of the fund on the record date. Distributions are paid to shareholders on the payment date. Past distributions are not indicative of future distributions. Please consult your tax professional or financial advisor for more information regarding your tax situation. BlackRock does not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor. The iShares Funds are not sponsored, endorsed or issued Markit Indices Limited, nor are they sponsored, endorsed or issued by Barclays Capital Inc. Neither of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above. 1 Survey of 845 end investors who own/share financial investment decision-making in his/her household was conducted during October 2012 by Market Strategies on behalf of BlackRock. 2 Source: BlackRock, as of 11/12. Past distributions are not indicative of future distributions.