6 Big Changes That Could Transform the ETF Market

[vnatale]

6 Big Changes That Could Transform the ETF Market

https://www.thinkadvisor.com/2019/07/15 ... tf-market/


4. Vanguard’s Innovative Patent Expires in 2023
Vanguard has figured out a way for its mutual funds to use heartbeat trades to minimize capital gains. It created a patent that essentially marries a mutual fund to a similar ETF via an ETF share class for the mutual fund, allowing the mutual fund to siphon off appreciated stock without incurring taxes.

Vanguard has conducted almost $130 billion worth of heartbeat trades since 2004, more than any other fund company, according to Bloomberg. Its patent is due to expire in 2023, which opens the door for more asset managers to adopt similar strategies, provided the IRS doesn’t object.

Heartbeat trades and ETF tax deferrals are perfectly legal under current law, which predates the formation of the first ETF in 1993, but that could change if the U.S. Treasury decides to collect more tax revenues to offset exploding debt levels.

Since 2000, ETFs have undertaken over 2,200 heartbeat trades worth $300 billion, according to Zachary Mider of Bloomberg News, who moderated a panel on the subject at the Gabelli-sponsored event.

Gordon said that heartbeat trades “smack of prearranged transactions,” which is a violation of securities law.