Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:
Vanguard, Barclays in ETF Scuffle [Wall Street Journal]
Summary: Two of the largest ETF providers, Vanguard and Barclays Global Investors [BGI], are scuffling over tax efficiency, one of the main selling points of ETFs. Vanguard Group recently told investors that several ETFs managed by rival BGI, who manages the iShares ETFs, were reporting relatively low levels of qualified dividend income, which can affect investors' bottom line. The tax rate on qualified dividends for investors in higher tax brackets was cut to 15% by Congress in 2004, and ETF providers have rolled out a parade of popular dividend-focused funds. The biggest and oldest is BGI's $7 billion iShares Dow Jones Select Dividend Index Fund (NYSEARCA:DVY). According to a Morningstar analyst, in 2004 only 86% of the dividends this ETF paid out qualified for the tax break. "That was a small but unpleasant surprise for those who bought this offering hoping to capitalize on the dividend tax cut." The ETF ran afoul of the rule in 2004, he said, because it was a new fund (launched in November 2003) that expanded quickly and saw heavy creation and redemption activity. A Barclays spokesman said the dividend ETF has since improved its qualified-dividend-income track record.
Related links: • Do Your ETF Dividends Qualify For the 15% Rule? • ETF Investing Guide: Combining Tax-Loss Selling & Rebalancing • ETF Investing Guide: Turning Taxes to Your Advantage
Potentially impacted stocks and ETFs: SPDR Dividend (NYSEARCA:SDY), First Trust Morningstar Dividend Leaders (NYSEARCA:FDL), Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), WisdomTree Large Cap Dividend Fund (NYSEARCA:DLN), WisdomTree Dividend Top 100 Fund (NYSEARCA:DON)
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