Q: Hi there,
What’s a Swap ETF? Seems like Horizons has some of them. Apparently they are very tax efficient in non-registered accounts and have higher than average yields?
What do you think?
Ok thanks!
What’s a Swap ETF? Seems like Horizons has some of them. Apparently they are very tax efficient in non-registered accounts and have higher than average yields?
What do you think?
Ok thanks!
5i Research Answer:
Also called total-return ETFs, Horizon's funds enter into derivative contracts with third parties (banks) in which dividends/interest are swapped for capital gains. Thus, these ETFs pay no distributions, so are only in a tax situation (gain or loss) when they are sold. We are quite comfortable with the set up. The government questioned the structure several years ago and some changes were made to ensure acceptance. For investors in a high tax bracket, they can result in decent tax savings as at high tax rates capital gains are taxed at the lowest rate vs dividends and interest.