Let The Tax-Free Season Begin

December 21, 2006

BGI posts zero capital gains for its ETFs, except for two real estate funds; news from Rydex and PowerShares.

2006 is rumored to be the biggest year for capital gains in recent history.  Analysts suggest that taxpayers could cough up over $20 billion in capital gain taxes to Uncle Sam, the highest level since 2001 and the second highest on records.  Investors have had a break from taxes in recent years, thanks to carryover losses from the bursting of the tech bubble. But with markets entering their fourth straight year of expansion, the good times are coming to an end.

At least, they're coming to an end for mutual fund investors.  Exchange-traded fund (ETF) investors might get to party a bit longer. 

Barclays Global Investors (BGI) said today that it will distribute zero capital gains to the vast majority of its equity and fixed-income ETFs. Only two real estate funds - the iShares Dow Jones U.S. Real Estate Fund (NYSE: IYR) and the iShares Cohen & Steers Realty Majors Index Fund (NYSE: ICF) - will make distributions, totaling $0.37/share in long-term gains for IYR and half a penny per share in long-term gains for ICF.  The other 115 iShares funds will issue no gains whatsoever.

Joining the "no gains" brigade is PowerShares, which earlier said that it would produce no capital gains at all for its family of ETFs (excluding the commodity ETF, as we'll explain later).  Rydex also said it would issue zero capital gains for its popular Rydex S&P Equal Weight ETF (AMEX: RSP) and Rydex Top 50 Index (AMEX: XLG); no word yet on its other fund families.

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