Considered Responses: ETF Gains?

Problem:

Why did my ETF pay a capital gains distribution last year?  I thought ETFs don't have to make distributions.

Solution:

ETFs use a distribution-in-kind mechanism to cash out investors so that ETFs don't realize any gains from shareholder redemptions.  However, as an ETF changes its portfolio gains and losses are realized.  As ETFs get more active expect more distributions.

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