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Many of Vanguard's ETFs are share classes of existing mutual funds. This structure is unique to Vanguard since they own a patent (expires May 2023) for it. One asset-management firm has already expressed interest in adding an ETF share class to several of its mutual funds. Will other firms follow suit?
Vanguard made the mistake of not licensing its "ETF class of funds" patents to anyone. By now, this idea is quite stale. Vanguard itself has launched some self-standing ETFs in the US, and in Europe, most of its ETFs are self-standing. The Australian firm Perpetual US/PGIA (not to be confused with the US PGIM) that has filed is for ACTIVE ETF classes of ACTIVE funds. Unclear if the Vanguard patent was limited to PASSIVE funds only, or whether it never bothered to do so with ACTIVE funds. Last few years have shown limitations of this idea - when there are heavy mutual fund outflows, then the related ETFs have the same CG distributions as all classes.
@ravitz, broad-based ETFs like VOO, VTI are fine. But smaller and specialized VG ETFs may have the same CG distribution issues as its mutual funds (if heavy redemptions).
Vanguard made the mistake of not licensing its "ETF class of funds" patents to anyone. By now, this idea is quite stale. Vanguard itself has launched some self-standing ETFs in the US, and in Europe, most of its ETFs are self-standing. The Australian firm Perpetual US/PGIA (not to be confused with the US PGIM) that has filed is for ACTIVE ETF classes of ACTIVE funds. Unclear if the Vanguard patent was limited to PASSIVE funds only, or whether it never bothered to do so with ACTIVE funds. Last few years have shown limitations of this idea - when there are heavy mutual fund outflows, then the related ETFs have the same CG distributions as all classes.
@yogibearbull, The linked article mentions a 2009 capital gains distribution for VEDTX due to a "perfect storm." Which other Vanguard ETF share classes had capital gains distributions during the last few years?
The article singles VEDTX out for having a large cap gains distribution. Modest cap gains distributions are not all that unusual. Here's a piece on Vanguard's 2012 ETF distributions, reporting that all but one of Vanguard's bond ETFs distributed cap gains that year. https://www.etf.com/sections/features/15419-vanguard-sets-cap-gains-on-12-bond-etfs-.html
It goes on to describe conditions in 2012 that led to bond ETF distributions, viz. "a post-crisis environment that has seen investors pile into fixed income in one-way traffic that has limited many managers’ ability to offset cap gains through sales of available low-cost-basis securities at the portfolio level." A storm perhaps, but apparently not, according to the M* piece you linked to, a perfect storm ("Such events have not occurred since [2009].")
The 2012 "imperfect" storm affected pure bond ETFs as well as Vanguard's hybrids.
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@yogibearbull,
The linked article mentions a 2009 capital gains distribution for VEDTX due to a "perfect storm."
Which other Vanguard ETF share classes had capital gains distributions during the last few years?
https://www.etf.com/sections/features/15419-vanguard-sets-cap-gains-on-12-bond-etfs-.html
It goes on to describe conditions in 2012 that led to bond ETF distributions, viz. "a post-crisis environment that has seen investors pile into fixed income in one-way traffic that has limited many managers’ ability to offset cap gains through sales of available low-cost-basis securities at the portfolio level." A storm perhaps, but apparently not, according to the M* piece you linked to, a perfect storm ("Such events have not occurred since [2009].")
The 2012 "imperfect" storm affected pure bond ETFs as well as Vanguard's hybrids.
Most recently, even Vanguard's broadest based bond fund, BND, had cap gains distributions in 2021 (Q2 and Q4) and 2022 (Q2).
https://digital.fidelity.com/prgw/digital/research/quote/dashboard/distributions-expenses?symbol=BND
Or take BNDX. In 2021, it had not only long term gains but short term gains.
https://infomemo.theocc.com/infomemos?number=49817
https://digital.fidelity.com/prgw/digital/research/quote/dashboard/distributions-expenses?symbol=BNDX
https://twitter.com/syouth1/status/1627288210148655105