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The Independent Adviser for Vanguard Investors
•
June 2015
•
7
FOR CUSTOMER SERVICE, PLEASE CALL
800-211-7641
3-Year
Return
Tax-Adj
Return
ETF diff.
(basis pts.)
5-Year
Return
Tax-Adj
Return
ETF diff.
(basis pts.)
S&P 500 ETF
16.1% 15.5%
3
N.A.
N.A.
N.A.
500 Index
15.9% 15.5%
14.3% 13.9%
Consumer Discretionary ETF
20.7% 20.4%
3
19.9% 19.6% (12)
Consumer Discretionary Index
20.7% 20.4%
19.9% 19.7%
Consumer Staples ETF
16.4% 15.9%
0
15.4% 14.7% (26)
Consumer Staples Index
16.4% 15.9%
15.4% 14.9%
Developed Markets ETF
8.9% 8.0% (21)
6.1% 5.3% (17)
Developed Markets Index
8.9% 8.2%
6.2% 5.5%
Dividend Appreciation ETF
13.6% 13.2%
0
12.9% 12.5%
2
Dividend Appreciation Index
13.6% 13.2%
12.9% 12.5%
Emerging Markets ETF
0.6% -0.2%
16
1.8% 1.1%
7
Emerging Markets Index
0.4% -0.4%
1.7% 1.0%
Energy ETF
3.2% 2.8%
0
7.2% 6.7% (14)
Energy Index
3.2% 2.8%
7.2% 6.9%
European ETF
9.5% 8.6%
4
6.6% 5.7%
(0)
European Index
9.4% 8.6%
6.6% 5.7%
Extended Market ETF
17.5% 17.1%
13
16.0% 15.6%
13
Extended Market Index
17.4% 17.0%
15.8% 15.5%
Financials ETF
16.7% 16.1%
3
10.8% 10.2% (12)
Financials Index
16.7% 16.1%
10.8% 10.3%
Global ex-U.S. Real Estate ETF 10.8% 9.1%
14
N.A.
N.A.
N.A.
Global ex-U.S. Real Estate
10.6% 8.9%
N.A.
N.A.
Growth ETF*
15.4% 15.1% (93)
15.0% 14.7% (52)
Growth Index
16.3% 16.0%
15.5% 15.3%
Health Care ETF
27.7% 27.4%
4
20.8% 20.3% (17)
Health Care Index
27.7% 27.4%
20.8% 20.4%
High Dividend Yield ETF
15.6% 14.9%
19
14.9% 14.3%
12
High Dividend Yield Index
15.4% 14.7%
14.8% 14.2%
Industrials ETF
17.4% 17.0%
(2)
15.1% 14.6% (19)
Industrials Index
17.4% 17.1%
15.1% 14.8%
Information Technology ETF
14.1% 13.8%
8
14.7% 14.5%
(2)
Information Technology Index
14.0% 13.8%
14.7% 14.5%
LargeCap ETF
16.2% 15.7%
14
14.5% 14.1%
12
LargeCap Index
16.0% 15.6%
14.4% 14.0%
Materials ETF
11.7% 11.3%
(6)
11.1% 10.5% (24)
Materials Index
11.8% 11.4%
11.1% 10.7%
MidCap ETF*
19.1% 18.8% 134
16.8% 16.5%
83
MidCap Index
17.8% 17.5%
15.9% 15.6%
MidCap Growth ETF
17.0% 16.8%
26
16.4% 16.3%
20
MidCap Growth Index
16.7% 16.5%
16.2% 16.1%
MidCap Value ETF
19.0% 18.5%
24
15.7% 15.3%
18
MidCap Value Index
18.7% 18.3%
15.5% 15.1%
Pacific ETF
7.9% 7.1%
17
5.6% 4.8%
6
Pacific Index
7.7% 6.9%
5.5% 4.7%
REIT ETF
14.1% 12.4%
6
15.8% 14.1%
4
REIT Index
13.9% 12.3%
15.7% 14.1%
SmallCap ETF
17.7% 17.2%
24
15.9% 15.5%
19
SmallCap Index
17.4% 17.0%
15.6% 15.3%
SmallCap Growth ETF*
15.9% 15.6% (46)
15.9% 15.7% (23)
SmallCap Growth Index
16.3% 16.1%
16.1% 15.9%
SmallCap Value ETF
18.2% 17.6%
7
15.1% 14.5%
13
SmallCap Value Index
18.1% 17.6%
14.9% 14.4%
Telecom Services ETF
13.7% 12.9%
(1)
12.5% 11.5% (36)
Telecom Services Index
13.7% 13.0%
12.6% 11.9%
Total International ETF
6.6% 5.8%
5
N.A.
N.A.
N.A.
Total International Index
6.5% 5.7%
4.8% 4.1%
Total Stock Market ETF
16.4% 15.9%
8
14.7% 14.3%
6
Total Stock Market Index
16.2% 15.8%
14.6% 14.2%
Total World Stock ETF
11.2% 10.6%
13
9.2% 8.7%
7
Total World Stock Index
11.0% 10.4%
9.1% 8.6%
Utilities ETF
13.0% 12.2%
0
13.1% 12.0% (41)
Utilities Index
13.0% 12.2%
13.1% 12.4%
Value ETF
16.7% 16.1%
78
13.9% 13.3%
48
Value Index
15.8% 15.3%
13.3% 12.8%
World ex-U.S. ETF
6.6% 5.7%
10
4.9% 4.2%
4
World ex-U.S. Index
6.4% 5.6%
4.9% 4.1%
World ex-U.S. SmallCap ETF
6.7% 5.8%
16
6.1% 5.2%
11
World ex-U.S. SmallCap Index
6.5% 5.6%
5.9% 5.1%
*Vanguard reports that the 3/31/15 prices for these funds were distorted, throwing off performance calculations (as explained in the article text
to the right). N.A.: ETF shares not available for the full five-year period.
ETFs Have No Consistent Tax Advantage
end fund to give the ETFs as much of
an advantage as possible.
Running down the table, you’ll see
that there are times when, on an after-
tax basis, the ETF comes out slightly
ahead of its Investor share sibling. At
other times, it’s the mutual fund. Most
importantly, the differences are mea-
sured in basis points, or hundredths of
a percent. Now, imagine the extra 10 or
so basis point advantage in operating
expenses of the Admiral share class
versus the Investor share class, and
you’ll quickly see that the tables turn
further towards the old, tried-and-true
open-end fund.
ETFs are more tax efficient? Bah!
Notice also that while the ETF share
class of a particular index offering
might outperform on a tax-adjusted
basis over three years, it might under-
perform over five—or
vice versa
. To
me, the choice between an ETF and an
index fund is a toss-up. So, if you hear
someone extolling the tax-efficiency
advantage of a Vanguard ETF over a
Vanguard index fund, pull this table
out. The argument doesn’t hold water.
One final note: I’ve marked three
ETFs that showed anomalous price
readings at the end of March that
impacted their three- and five-year
returns. To see if a “corrected” price
and resulting total return calculation
turned the tables on the ETFs’ after-tax
returns compared to their open-end
Investor shares, I gave them the Investor
shares’ returns for March. While the
disparities are greatly reduced, not one
of the three ETFs comes out signifi-
cantly ahead of or behind the Investor
shares.
But if you buy the Admiral shares
instead, my original comment holds:
The odds are that you’ll actually do
better after taxes by staying away from
ETFs and buying an old-fashioned
open-end mutual fund.
Tax Day is behind us, but there are
seven more months to this year and
many more years to come after. While
you may have closed the books on your
2014 taxes, don’t ignore chances for
better after-tax returns from open-end
funds, whether actively managed or
indexed, in the future.
n