Will Tax Changes Undermine the ETF Market?

The booming market for Exchange-Traded Funds (ETFs) may be in for some turbulence, as the US Senate Finance Committee considers implementing a new tax on the investment vehicle. Until now, one of the key benefits for investors in ETFs is that they leverage “in-kind” transactions to swap underlying assets without producing taxable capital gains.

The investment industry has responded to the Committee’s plans by arguing that a tax on ETFs would be detrimental to the interests of retail and institutional investors, as it would both raise costs and reduce returns. According to advocates, the liquidity and transparency of ETFs make them incredibly useful as an investment vehicle and the benefits to investors outweigh the income that would be generated through a new transaction tax.

John Lanaro, SVP and Global Head of ETFs at RIMES, comments: “As a financial data provider we see the benefits of ETFs on a daily basis, not least when it comes to market access. In the US there are over 2,500 ETF listings, holding over 100,000 unique securities. Prior to ETFs, it would have been impossible for the everyday investor to access these instruments.

“For example, there are over 1,000 US-listed ETFs that hold approximately 80,000 unique bonds across multiple sectors and currencies. Equity ETFs listed in the US give investors access to over 20,000 unique securities domiciled in over 50 countries – that’s a big advantage.

“Looking at one of the biggest fixed income funds from Vanguard, it’s clear that ETFs provide significant diversity and liquidity, while still trading very closely with funds’ net asset values and without giving up tracking error. These characteristics make ETFs unique and deserving of a key role within investors’ portfolios.”

RIMES ETF Data Management provides timely and accurate exposure monitoring and insight for ETFs. Contact us to discuss how we can help you source, normalize, validate and deploy ETF data in your operations.

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