ETF Tax Center
Taxes can erode even the best fund's returns. Generally, when an investment does not require investors to pay taxes during the ownership period, the investment is potentially more tax efficient. 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.
Frequently Asked Questions
Why are ETFs tax efficient?
Unlike traditional mutual funds, the majority of buying and selling by shareholders takes place on an exchange and not directly with the ETF. As a result, the ETF does not need to make purchases or sales in its portfolio in response to these shareholder trades, and with a lower volume of portfolio sales there is a lower likelihood of the ETF realizing gains on its portfolio.
ETFs work directly with authorized participants (APs) which are typically large institutions to create and redeem existing fund shares typically through an "in-kind" process. APs have a legal agreement in place with an ETF trust and their custodial bank allowing them to create or redeem shares of the ETF in large blocks of shares known as creation units. When redemptions are processed "in-kind", the Fund delivers a specific basket of portfolio securities in return for the AP surrendering shares of the ETF.
Due to specific provisions of the Internal Revenue Code, an "in-kind" redemption does not result in a taxable realized gain or loss to the ETF. Thus, this structure may create a meaningfully different after-tax return experience between an ETF and another type of investment vehicle — even if both track the same index.
Please visit our Education Center for more information on tax efficiency and a pictorial representation of creation/redemption process.
What circumstances might make an ETF more likely to have capital gains distributions?
Common events that may cause an ETF to incur capital gains include:
- Corporate Actions: A corporate action is an event that causes material change for a company which could affect its shareholders. With a corporate action, a Fund may be required to surrender a specific portfolio holding to the issuer, or a transaction by the issuer of the holding may result in a realized gain or loss to the Fund, despite the Fund not initiating a transaction.
- Derivative instrument gains: Realizing gains on derivative instruments or collateral such as options or futures that settle or expire with a net gain to the fund.
- Non-in-kind Portfolio Transactions: There may be situations where an in-kind transaction is not available or appropriate and therefore the Fund may sell securities for cash as opposed to delivering them "in-kind". These types of sales will give rise to a taxable realized gain or loss to the Fund.
Click here to view our press release on capital gains.
Why do some of your ETFs issue K-1s? Which ones? Where can I get more info on that?
ETFs that are structured as a partnership will issue K-1s.
Invesco ETFs that issue K-1s include:
- DB Agriculture Fund (DBA)
- DB Base Metals Fund (DBB)
- DB Commodity Index Tracking Fund (DBC)
- DB Energy Fund (DBE)
- DB G10 Currency Harvest Fund (DBV)
- DB Gold Fund (DGL)
- DB Oil Fund (DBO)
- DB Precious Metal Fund (DBP)
- DB Silver Fund (DBS)
- DB US Dollar Bearish Fund (UDN)
- DB US Dollar Bullish Fund (UUP)
You can get more information on K-1s and view our step-by-step K-1 Flyer by visiting our K-1 Tax Center.
Investments with similar objectives often display closely correlated performance and may provide an opportunity to harvest tax losses without sacrificing the desired exposure. To find a Invesco ETF that is closely correlated with a particular security or fund, simply enter the ticker symbol into the Invesco Correlation Analyzer Tool. The tool will produce a list of Invesco ETFs that are most closely correlated with the security entered.
In some instances, an ETF may be an appropriate replacement for an individual stock. Replacing a stock with an ETF may provide an investor with a similar, less- concentrated exposure to the market attributes exhibited by the individual stock. To find a Invesco ETF that contains a specific stock, simply enter its ticker symbol into the Invesco Stock Screener Tool. The tool will provide a list of Invesco ETFs that contain that stock along with its weight in the portfolio.
Choosing an investment which covers a similar market segment to a current position may provide an opportunity to harvest tax losses without sacrificing the desired exposure. To find a Invesco ETF that covers a particular market segment, use the Invesco Exposure Comparison Tool. The tool will produce a list of Invesco ETFs that have the highest percent allocation to the country, style, sector, industry or sub-industry that is selected.
K-1 Tax Center
Tools, resources and answers to frequently asked questions for products that issue K-1s.
K-1 Tax Center
1099 Data for ETF Products
DB Commodity and Currency Fund Investors
Tax Package Support Contact Information
American Jobs Creation Act
|Qualified Interest Income (QII)
Tax Loss Harvesting
|Tax-Loss Harvesting with PowerShares ETFs
|ETF Tax Characteristics for Shareholders White paper
|ETF Tax Characteristics for Shareholders White paper
There are risks involved with investing in ETFs including possible loss of money. Index–based ETFs are not actively managed. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Both index–based and actively managed ETFs are subject to risk similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply.
While it is not Invesco Invesco Capital Management LLC intention, there is no guarantee that the Funds will not distribute capital gains to its shareholders.
Invesco and Invesco Distributors, Inc. and their affiliates do not provide tax advice. Please note that (i) any discussion of U.S. tax matters contained is this communication cannot be used for the purpose of avoiding tax penalties; (ii) this communication was written to support this promotion or marketing of matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.
The information in this communication is not a complete analysis of every material aspect relating to tax harvesting. This communication is for educational purposes only. Tax consequences will vary between individuals and each individual should carefully evaluate his or her tax position with an independent advisor.
The Invesco DB Funds are not a mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulation thereunder. Shares in the Invesco DB Funds are not FDIC insured, may lose value and have no bank guarantee.