Tax Friendly ETFs

Tax season is under way and for those who invest in ETFs, capital gains tax is one less worry.

While it is too late for those who delayed on ETF investments, there is always a new year. Although most ETFs are touted for their tax efficiency, it's important to pay attention to each one. Many of the newer ETFs are more specialized which could effect their tax efficiency in different ways.

Marc Hogan of BusinessWeek looks at five funds that are top-rated for consistent returns and tax efficiency and could help diversify a portfolio:

1. iShares MSCI Austria Index (EWO) 5-year return of 36% and over that time lost 0.4% to tax costs;
2. iShares Russell 2000 Value Index (IWN) 5-year return of 13% and over that time lost 0.5% to tax costs;
3. Vanguard Small Cap Value Index (VBR) 3-year return of 14% and over that time lost 0.5% to tax costs;
4. iShares Russell Mid Cap Value Index (IWS) 5-year return of 15% and over that time lost 0.7% to tax costs;
5. Vanguard Value Index (VTV) 3-year return of 13% and over that time lost 0.5% to tax costs.