2020 tax costs for US and international value ETFs

[grabiner]

At least last year (2020), there was no extra tax cost for the value factor with international ETFs, although this is partly because the international value factor ETFs are a bit more expensive that Vanguard's blend ETFs. For international value, iShares is more tax-efficient than Avantis in most tax brackets, because of more qualified dividends and a higher foreign tax credit. Value US ETFs were less tax-efficient than blend US ETFs.

For more recent years (especially significant because 2020 dividends were atypical), see 2021 tax costs for value ETFs 2022 tax costs for value ETFs

Therefore, even if you normally prefer US stocks to foreign stocks in your taxable accounts (because you are in a high-tax state, in a very high federal tax bracket, or in some phase-out, and thus want to minimize total dividends), you should probably prefer foreign value ETFs over US value ETFs.

For each fund, the dividend yield is computed as the taxable dividend divided by the 12/31/20 share price. Note that this will be more than the distribution yield for international funds, because of the foreign tax credit. To compute your tax cost, take

Dividend yield * [(Qualified percentage*QDI tax rate)+((1-Qualified percentage)*normal tax rate)-FTC]

For example, a fund with 70% qualified dividends and 8% foreign tax has a tax cost in a 24% bracket of (.7*.15+.3*.24-.08)=9.7% of its dividend yield, or 0.19% if the dividend yield is 2.00% (and the distribution yield is 1.84%).

2020 dividends were unusually low; historical yields were about 50% higher for both US and foreign stocks, and dividends may go back up in the future. Thus you might want to add 50% to all the estimated tax costs from the table, with no change from the relative order.

The table below includes the non-factor but popular VBR, and includes the blend indexes for comparison. Note that the large-cap Avantis funds (AVUS, AVDE, AVEM) don't offer that much value exposure.

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
VTI     Vanguard Total Stock Market            1.32%    0%       96%
VB      Vanguard Small-Cap                     1.15%    0%       75%
VBR     Vanguard Small-Cap Value               1.38%    0%       84% 
VFVA    Vanguard Factor Value                  2.04%    0%      100%
AVUS    Avantis US Equity                      1.19%    0%      100%
AVUV    Avantis US Small-Cap Value             1.21%    0%      100%

VXUS    Vanguard Total International           2.36%  9.3%       72%
VSS     Vanguard FTSE Ex-US Small-Cap          2.15% 12.1%       56%
IVLU    iShares MSCI Factor Value (large-cap)  2.27%  9.5%      100%
AVDE    Avantis International (large-cap)      1.74%  6.4%       79%
AVDV    Avantis International Small-Cap Value  1.73%  3.6%       55%
AVEM    Avantis Emerging Markets               1.75%  8.4%       63%

(edited to add column labels, which were mistakenly omitted, and to fix typo in table)

(additional edit to correct title, since US ETFs are discussed as well)

(third edit to group funds properly by market type)

(fourth edit to change thread title and introduction, to discourage followups on the 2020 thread)

[grabiner]

I had done some preliminary research for this chart before setting my own allocation, as there will probably be a tax cost to fix things if I put the wrong fund in my taxable account.

I decided that the extra cost of Avantis was worth it for the deep value exposure of AVDV, but not for the lesser exposure of AVEM (and I don't need it for US). Thus I hold VFVA for my US value (both large and small), IVLU for international large-cap value, and AVDV for international small-cap value.

And of those three, IVLU is the most tax-efficient. With 100% qualified dividends and a high foreign tax credit, the fund is comparable in tax cost to blend funds. AVDV, with a lot of non-qualified dividends and a very low foreign tax credit, is less tax-efficient than the blend ETF. And VFVA has almost as high a yield as IVLU, with no foreign tax credit. Thus I hold IVLU in taxable, and fill up my IRA and HSA with the other two funds (and REITs, which must also be in the IRA).

[tomsense76]

Just to make sure I understand the columns are:

1. Ticker
2. Fund name
3. Dividend yield
4. Foreign tax withheld(?)
5. Percentage qualified

Does that sound right or did I misunderstand anything there? Also a little fuzzy on 4

[zonto]

Thank you for posting this! I recently looked into this given most of my investments are in a taxable account. It seems like some of the Avantis QDI numbers in the table may be off for 2020? See: https://www.avantisinvestors.com/conten ... ncome.html. It also appears that in 2020, Avantis’ international mutual funds were more tax efficient than the ETF counterparts for some reason. (Maybe because mutual fund distributions are only annual whereas the ETF distributions are semiannual?)

Note too that all Avantis funds and ETFs paid some amount of both short- and long-term capital gains last year: https://www.avantisinvestors.com/conten ... tions.html. I haven’t dug into this further.

I decided to wait and see how 2021 goes for Avantis given 2020 was such an odd year.

[annu]

I started doing ITOT/IXUS(iShares version of VTI/VXUS) mostly so that it is simpler to tax loss harvest to VTI/VXUS when needed as we are only using vanguard funds in all other accounts. WHile it is probably too late as already done investing 60% of money allocated, but will be interested in seeing how ITOT/IXUS compare.
ITOT:https://www.ishares.com/us/products/244048/
IXUS: https://www.ishares.com/us/products/244048/

We are in 37% tax bracket, with 10% State tax.

[grabiner]

Just to make sure I understand the columns are:

1. Ticker
2. Fund name
3. Dividend yield
4. Foreign tax withheld(?)
5. Percentage qualified

Does that sound right or did I misunderstand anything there? Also a little fuzzy on 4

Yes, this is correct; I forgot to copy the column labels in the original post, so I added them. Column 4 is foreign tax as a percentage of dividend yield.

[grabiner]

Thank you for posting this! I recently looked into this given most of my investments are in a taxable account. It seems like some of the Avantis QDI numbers in the table may be off for 2020? See: https://www.avantisinvestors.com/conten ... ncome.html. It also appears that in 2020, Avantis’ international mutual funds were more tax efficient than the ETF counterparts for some reason. (Maybe because mutual fund distributions are only annual whereas the ETF distributions are semiannual?)

Note too that all Avantis funds and ETFs paid some amount of both short- and long-term capital gains last year: https://www.avantisinvestors.com/conten ... tions.html. I haven’t dug into this further

I got the QDI and capital gains from Avantis Tax information. The ETFs list a "paid" date for the gains, but they didn't actually pay any.

[sycamore]

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
...
AVUS    Avantis US Equity                      1.19%    0%      100%
AVUS    Avantis US Small-Cap Value             1.21%    0%      100%

grabiner, thanks for compiling that info.

There's a typo in the table - AVUS is listed twice. The second one should be AVUV for the small cap value fund.

[jason2459]

That's quite impressive that IVLU was able to get 100% QD. Thanks for compiling that.

[tomsense76]

Just to make sure I understand the columns are:

1. Ticker
2. Fund name
3. Dividend yield
4. Foreign tax withheld(?)
5. Percentage qualified

Does that sound right or did I misunderstand anything there? Also a little fuzzy on 4

Yes, this is correct; I forgot to copy the column labels in the original post, so I added them. Column 4 is foreign tax as a percentage of dividend yield.

All good. Thanks for clarifying

[grabiner]

There's a typo in the table - AVUS is listed twice. The second one should be AVUV for the small cap value fund.

Thanks; fixed.

[muffins14]

FNDC and FNDF are also good candidates:

FNDC: distribution yield 1.76%, qualified dividends: 90.66%
FNDF: distribution yield 2.16%, qualified dividends: 100%

[gtwhitegold]

Since I'm trying not to let the tax tail wag the investment dog, please tell me if this makes sense:

Between AVDV, FEMS, and FM, it looks like AVDV has the lowest tax cost ratio, so I would put AVDV in taxable first, correct?

The reason that I'm not trying to prioritize US in taxable is that I'm trying to have as much factor exposure in my portfolio as possible and the options available in my TSP and DW's 401k are very poor for international if you want more factor exposure.

Also, I've been gathering the tax cost ratio from Fidelity's website. Is that good enough, or is there something better?

Thank you.

[grabiner]

Since I'm trying not to let the tax tail wag the investment dog, please tell me if this makes sense:

Between AVDV, FEMS, and FM, it looks like AVDV has the lowest tax cost ratio, so I would put AVDV in taxable first, correct?

This is the correct way to make the decision. Once you have decided which funds to hold, you should hold the most tax-efficient funds in taxable consistent with your options elsewhere. (Since few 401(k) plans offer value factor funds, you may have to hold them in taxable if your IRA doesn't have the room. This is my situation.)

Also, I've been gathering the tax cost ratio from Fidelity's website. Is that good enough, or is there something better?

It is better to get the distribution information from the fund provider, and compute your own tax cost. That is what is in the table above.

Published tax costs assume the highest federal tax rate and no state tax; your own tax costs may be different. In addition, third parties such as Morningstar (which Fidelity uses) may not always know about qualified dividends, so they may overestimate tax costs for some funds. For all three of your examples, Fidelity's one-year numbers appear to be based on 100% non-qualified dividends.

[gtwhitegold]

Since I'm trying not to let the tax tail wag the investment dog, please tell me if this makes sense:

Between AVDV, FEMS, and FM, it looks like AVDV has the lowest tax cost ratio, so I would put AVDV in taxable first, correct?

This is the correct way to make the decision. Once you have decided which funds to hold, you should hold the most tax-efficient funds in taxable consistent with your options elsewhere. (Since few 401(k) plans offer value factor funds, you may have to hold them in taxable if your IRA doesn't have the room. This is my situation.)

Also, I've been gathering the tax cost ratio from Fidelity's website. Is that good enough, or is there something better?

It is better to get the distribution information from the fund provider, and compute your own tax cost. That is what is in the table above.

Published tax costs assume the highest federal tax rate and no state tax; your own tax costs may be different. In addition, third parties such as Morningstar (which Fidelity uses) may not always know about qualified dividends, so they may overestimate tax costs for some funds. For all three of your examples, Fidelity's one-year numbers appear to be based on 100% non-qualified dividends.

I definitely appreciate the information. Too bad that it seems really cumbersome to gather all of the tax information for most funds. iShares and First Trust seem pretty bad about having putting this information in an easily accessible format.

[grabiner]

It is better to get the distribution information from the fund provider, and compute your own tax cost. That is what is in the table above.

Published tax costs assume the highest federal tax rate and no state tax; your own tax costs may be different. In addition, third parties such as Morningstar (which Fidelity uses) may not always know about qualified dividends, so they may overestimate tax costs for some funds. For all three of your examples, Fidelity's one-year numbers appear to be based on 100% non-qualified dividends.

I definitely appreciate the information. Too bad that it seems really cumbersome to gather all of the tax information for most funds. iShares and First Trust seem pretty bad about having putting this information in an easily accessible format.

Usually, the way to get this information from an ETF provider is to look for something like "2020 tax information", which often has a table or spreadsheet for all the funds. This is what I did for iShares and Avantis. At Vanguard, the information is split across several places; there is a distribution history, qualified dividend percentage, and foreign tax information.

[indexingtimes]

How is it that in this day and age, ETF and mutual fund providers don't have simple, easy-to-use, online tools in which you put in the investment you want to look up and your tax rates, and then the tool spits out the post-tax returns for that investment for 1 year, 3 years, 5 years, etc? I get why many providers wouldn't want to do that -- because the results wouldn't be good -- by wouldn't a Vanguard do it?

[Ferdinand2014]

How is it that in this day and age, ETF and mutual fund providers don't have simple, easy-to-use, online tools in which you put in the investment you want to look up and your tax rates, and then the tool spits out the post-tax returns for that investment for 1 year, 3 years, 5 years, etc? I get why many providers wouldn't want to do that -- because the results wouldn't be good -- by wouldn't a Vanguard do it?

Fidelity gives after tax return for every fund and ETF. They do not include any state tax and assume highest tax bracket. I believe most fund providers do.

FXAIX for example:
Scroll down to "Quarter-End Average Annual Total Returns "
https://fundresearch.fidelity.com/mutua ... =sq-NavBar

[absolute zero]

It is better to get the distribution information from the fund provider, and compute your own tax cost. That is what is in the table above.

Published tax costs assume the highest federal tax rate and no state tax; your own tax costs may be different. In addition, third parties such as Morningstar (which Fidelity uses) may not always know about qualified dividends, so they may overestimate tax costs for some funds. For all three of your examples, Fidelity's one-year numbers appear to be based on 100% non-qualified dividends.

I definitely appreciate the information. Too bad that it seems really cumbersome to gather all of the tax information for most funds. iShares and First Trust seem pretty bad about having putting this information in an easily accessible format.

Usually, the way to get this information from an ETF provider is to look for something like "2020 tax information", which often has a table or spreadsheet for all the funds. This is what I did for iShares and Avantis. At Vanguard, the information is split across several places; there is a distribution history, qualified dividend percentage, and foreign tax information.

Hey Grabiner, hoping you could help me out. I'm looking to generate tax efficiency for some other Vanguard funds not listed in the OP. To make sure I do it right, I'm first trying to replicate your numbers for VXUS. I found FTC and % Qualified data that matches up, but I'm stuck on the yield.

You show 2.36% yield for VXUS. Using link below, I took the per share distributions from 2020 and added up all 4 of them to get $1.2867 per share. Divided that by the 12/31/2020 share price of $60.16. This gave me a dividend yield of 2.14%. Did I do anything wrong?

Thanks!

https://investor.vanguard.com/etf/profi ... tions/vxus

[grabiner]

Hey Grabiner, hoping you could help me out. I'm looking to generate tax efficiency for some other Vanguard funds not listed in the OP. To make sure I do it right, I'm first trying to replicate your numbers for VXUS. I found FTC and % Qualified data that matches up, but I'm stuck on the yield.

You show 2.36% yield for VXUS. Using link below, I took the per share distributions from 2020 and added up all 4 of them to get $1.2867 per share. Divided that by the 12/31/2020 share price of $60.16. This gave me a dividend yield of 2.14%. Did I do anything wrong?

Thanks!

https://investor.vanguard.com/etf/profi ... tions/vxus

You need to add the foreign tax credit back in, because you pay tax on the dividend including the withheld foreign tax (but then get the withheld tax back as a credit.) Foreign tax credit information says that the foreign tax was 0.09435 times the dividend, Multiplying 1.2867 by 1.09435 gives a total dividend of 1.4081, which makes the taxable dividend 2.34%; this is within rounding error of the 2.36% I reported.

[absolute zero]

Hey Grabiner, hoping you could help me out. I'm looking to generate tax efficiency for some other Vanguard funds not listed in the OP. To make sure I do it right, I'm first trying to replicate your numbers for VXUS. I found FTC and % Qualified data that matches up, but I'm stuck on the yield.

You show 2.36% yield for VXUS. Using link below, I took the per share distributions from 2020 and added up all 4 of them to get $1.2867 per share. Divided that by the 12/31/2020 share price of $60.16. This gave me a dividend yield of 2.14%. Did I do anything wrong?

Thanks!

https://investor.vanguard.com/etf/profi ... tions/vxus

You need to add the foreign tax credit back in, because you pay tax on the dividend including the withheld foreign tax (but then get the withheld tax back as a credit.) Foreign tax credit information says that the foreign tax was 0.09435 times the dividend, Multiplying 1.2867 by 1.09435 gives a total dividend of 1.4081, which makes the taxable dividend 2.34%; this is within rounding error of the 2.36% I reported.

This makes more sense to me now. Thanks again.

[brademac]

Mr Grabiner,

Have you had time to update this table bases on 2021 dividend information?

I am curious mainly how the Vanguard funds compared to Avantis. The main ETFs of interest for me would be how these four compared in tax efficiency in 2021- AVUV, VBR, AVDV, VSS

I see dividend yields went up in 2021 as you predicted but not sure how foreign credit and qualified versus non qualified dividend impacted tax efficiency

This article you posted last year was so helpful to many of us so was hoping you would please update with 2021 figures

Thanks in advance

At least last year, there was no extra tax cost for the value factor with international ETFs, although this is partly because the international value factor ETFs are a bit more expensive that Vanguard's blend ETFs. For international value, iShares is more tax-efficient than Avantis in most tax brackets, because of more qualified dividends and a higher foreign tax credit. Value US ETFs were less tax-efficient than blend US ETFs.

Therefore, even if you normally prefer US stocks to foreign stocks in your taxable accounts (because you are in a high-tax state, in a very high federal tax bracket, or in some phase-out, and thus want to minimize total dividends), you should probably prefer foreign value ETFs over US value ETFs.

For each fund, the dividend yield is computed as the taxable dividend divided by the 12/31/20 share price. Note that this will be more than the distribution yield for international funds, because of the foreign tax credit. To compute your tax cost, take

Dividend yield * [(Qualified percentage*QDI tax rate)+((1-Qualified percentage)*normal tax rate)-FTC]

For example, a fund with 70% qualified dividends and 8% foreign tax has a tax cost in a 24% bracket of (.7*.15+.3*.24-.08)=9.7% of its dividend yield, or 0.19% if the dividend yield is 2.00% (and the distribution yield is 1.84%).

2020 dividends were unusually low; historical yields were about 50% higher for both US and foreign stocks, and dividends may go back up in the future. Thus you might want to add 50% to all the estimated tax costs from the table, with no change from the relative order.

The table below includes the non-factor but popular VBR, and includes the blend indexes for comparison. Note that the large-cap Avantis funds (AVUS, AVDE, AVEM) don't offer that much value exposure.

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
VTI     Vanguard Total Stock Market            1.32%    0%       96%
VB      Vanguard Small-Cap                     1.15%    0%       75%
VBR     Vanguard Small-Cap Value               1.38%    0%       84% 
VFVA    Vanguard Factor Value                  2.04%    0%      100%
AVUS    Avantis US Equity                      1.19%    0%      100%
AVUV    Avantis US Small-Cap Value             1.21%    0%      100%

VXUS    Vanguard Total International           2.36%  9.3%       72%
VSS     Vanguard FTSE Ex-US Small-Cap          2.15% 12.1%       56%
IVLU    iShares MSCI Factor Value (large-cap)  2.27%  9.5%      100%
AVDE    Avantis International (large-cap)      1.74%  6.4%       79%
AVDV    Avantis International Small-Cap Value  1.73%  3.6%       55%
AVEM    Avantis Emerging Markets               1.75%  8.4%       63%

(edited to add column labels, which were mistakenly omitted, and to fix typo in table)

(additional edit to correct title, since US ETFs are discussed as well)

(third edit to group funds properly by market type)

[grabiner]

Mr Grabiner,

Have you had time to update this table bases on 2021 dividend information?

I am curious mainly how the Vanguard funds compared to Avantis. The main ETFs of interest for me would be how these four compared in tax efficiency in 2021- AVUV, VBR, AVDV, VSS

The 2021 update is posted in 2021 tax costs for value ETFs

I plan to do another update in 2022, when I will be able to incorporate the newest Avantis funds: AVLV (US large value), AVIV (foreign large value), AVES (emerging markets value).

[brademac]

Thanks! I had not seen this update

I really appreciate you taking the time to do this for us. It is very helpful.

I was debating on adding AVDV to my taxable but based on this I think I will.

Please also consider adding AVSC to your analysis when you update this a year from now. It is a nice way to get exposure to micro caps and also has a value slant even though called a blend fund. I think it around 60% micro caps and 40% small caps. It is only good way for someone like me to get decent micro cap exposure without having to go to DFA or Bridgeway.

Mr Grabiner,

Have you had time to update this table bases on 2021 dividend information?

I am curious mainly how the Vanguard funds compared to Avantis. The main ETFs of interest for me would be how these four compared in tax efficiency in 2021- AVUV, VBR, AVDV, VSS

The 2021 update is posted in 2021 tax costs for value ETFs

I plan to do another update in 2022, when I will be able to incorporate the newest Avantis funds: AVLV (US large value), AVIV (foreign large value), AVES (emerging markets value).

[absolute zero]

I was debating on adding AVDV to my taxable but based on this I think I will.

I too am glad to see this update, since I hold a decent chunk of my portfolio in AVDV in taxable. Comparing against VXUS (for my own tax brackets): AVDV carried an 8 bps tax disadvantage against VXUS in 2020, but this reversed and in 2021 AVDV had a 7 bps tax efficiency advantage against VXUS.

[brademac]

Mr Grabiner,

Have you had time to update this table bases on 2021 dividend information?

I am curious mainly how the Vanguard funds compared to Avantis. The main ETFs of interest for me would be how these four compared in tax efficiency in 2021- AVUV, VBR, AVDV, VSS

The 2021 update is posted in 2021 tax costs for value ETFs

I plan to do another update in 2022, when I will be able to incorporate the newest Avantis funds: AVLV (US large value), AVIV (foreign large value), AVES (emerging markets value).

Mr Grabiner,

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

[grabiner]

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

[brademac]

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Thanks for your comments. I hold these in my Vanguard brokerage and got my 1099DIV today so that is where I got these figures. I was surprised to see Vanguard had access to them before Avantis posted to their website.

I will continue to add to AVDV in my taxable account since it appears to be ran in a very tax efficient way. Evidently the portfolio managers are very cognizant of taxes the way they run these funds. I guess that is one advantage to an actively managed ETF over one that has to follow an index from a third party.

I will be interested in seeing the tax efficiency of AVLV, AVIV, and AVES. I suspect AVES won’t be efficient and the other ones will be.

[gtwhitegold]

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Thanks for your comments. I hold these in my Vanguard brokerage and got my 1099DIV today so that is where I got these figures. I was surprised to see Vanguard had access to them before Avantis posted to their website.

I will continue to add to AVDV in my taxable account since it appears to be ran in a very tax efficient way. Evidently the portfolio managers are very cognizant of taxes the way they run these funds. I guess that is one advantage to an actively managed ETF over one that has to follow an index from a third party.

I will be interested in seeing the tax efficiency of AVLV, AVIV, and AVES. I suspect AVES won’t be efficient and the other ones will be.

Why do you think that AVES will be less tax efficient? Higher distribution rate, lower QDI, a bit of both, or just issues with new ETFs?

[brademac]

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Thanks for your comments. I hold these in my Vanguard brokerage and got my 1099DIV today so that is where I got these figures. I was surprised to see Vanguard had access to them before Avantis posted to their website.

I will continue to add to AVDV in my taxable account since it appears to be ran in a very tax efficient way. Evidently the portfolio managers are very cognizant of taxes the way they run these funds. I guess that is one advantage to an actively managed ETF over one that has to follow an index from a third party.

I will be interested in seeing the tax efficiency of AVLV, AVIV, and AVES. I suspect AVES won’t be efficient and the other ones will be.

Why do you think that AVES will be less tax efficient? Higher distribution rate, lower QDI, a bit of both, or just issues with new ETFs?

Large dividends and less qualified dividends. So a double whammy. I am not sure how much of a foreign tax credit it will have so maybe that will help.

[gtwhitegold]

I got my tax forms today and own AVUV and AVDV. My AVUV dividends were 100% qualified. All of my AVDV shares were accumulated 2nd half of year so all my dividends were paid in December. Of those dividends, 80.42% were qualified and 10.26% of dividend is listed as foreign tax. Any comments on the tax efficiency of AVDV? This is better than I was expecting so was curious on your opinion.

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Thanks for your comments. I hold these in my Vanguard brokerage and got my 1099DIV today so that is where I got these figures. I was surprised to see Vanguard had access to them before Avantis posted to their website.

I will continue to add to AVDV in my taxable account since it appears to be ran in a very tax efficient way. Evidently the portfolio managers are very cognizant of taxes the way they run these funds. I guess that is one advantage to an actively managed ETF over one that has to follow an index from a third party.

I will be interested in seeing the tax efficiency of AVLV, AVIV, and AVES. I suspect AVES won’t be efficient and the other ones will be.

Why do you think that AVES will be less tax efficient? Higher distribution rate, lower QDI, a bit of both, or just issues with new ETFs?

Large dividends and less qualified dividends. So a double whammy. I am not sure how much of a foreign tax credit it will have so maybe that will help.

Yeah, that makes sense. Looking at just the dividend yield, it looks like most of the US SV funds that I would purchase should be considerably lower yielding than the Developed Ex US and Emerging Markets funds. After accounting for state taxes, and even if all of the dividends were qualified, I would still likely have lower taxes buying US funds in taxable than buying any of the international funds that I am considering. I don't think that a foreign tax credit will be significant enough to make a difference.

[Sammy_M]

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Hi, grabiner. I was wondering if you have thoughts on DFA's World Ex-US ETF (DFAX, 0.31%), which was previously Tax Aware World ex US Core Equity, and its relative cost and tax efficiency vs. holding separate funds to achieve similar tilt -- e.g. using VXUS (or VEA, VWO) + AVDV, AVES (or DISV, DFEV) for tilt.

[grabiner]

Avantis hasn't published its tax information yet, but those numbers would make AVDV very tax efficient. In a 24% tax bracket, the tax cost would be

Dividend yield * (15%*80.42% + 24%*19.56% -10.26%)

which would be only 7% of the dividend. (Replace 15% and 24% by your own tax rates to calculate your personal tax cost)

In 2021, the dividend was low, but the foreign tax was only 3.6% of the dividend.

Hi, grabiner. I was wondering if you have thoughts on DFA's World Ex-US ETF (DFAX, 0.31%), which was previously Tax Aware World ex US Core Equity, and its relative cost and tax efficiency vs. holding separate funds to achieve similar tilt -- e.g. using VXUS (or VEA, VWO) + AVDV, AVES (or DISV, DFEV) for tilt.

I don't have the numbers yet, and I haven't been including core funds in these posts, but you can check any fund yourself the same way I do. Go to the fund provider's web site and look for a page with a name such as "Tax information". For most ETF providers, there is a spreadsheet which lists the dividends, qualified dividends, foreign tax withheld, and capital gain distributions per share. To get the tax cost, compute the tax cost per share (given your own tax rates), and divide this by the share price on December 31

This is how the tables in this post and the 2021 post were constructed, except that I posted only the percentages, so that you can make your own computation based on your tax rates. (For example, non-qualified dividends are much more important if you are in the 35% tax bracket rather than the 22% tax bracket.)

[Sammy_M]

Thank you for the reply. I've setup a spreadsheet to run these calculations so will be ready once the fund companies post the information. However, I must say, I'm having difficulty finding foreign tax paid figures for DFA even for prior years.

[hiddenpower]

Does your 1099 specific how much FTC you can claim or is this something you'll have to get off avantis' page? I would hope it's in the 1099 otherwise i'm not sure how to compute for a partial year holding.

Is the consensus that AVDV is suitable for a taxable account?

[grabiner]

Does your 1099 specific how much FTC you can claim or is this something you'll have to get off avantis' page? I would hope it's in the 1099 otherwise i'm not sure how to compute for a partial year holding.

The 1099 will show how much foreign tax was withheld, but you need to go to Avantis's web site to find out how much of the dividend was foreign, which you will need for Form 1116. For 2022, Avantis ETF Tax Information (XLS)

Is the consensus that AVDV is suitable for a taxable account?

There is more data now: 2021 tax costs for value ETFs
2022 tax costs for value ETFs

AVDV is OK for a taxable account, but 2021 and 2022 foreign yields were higher than US yields, and AVDV doesn't get much foreign tax credit, so it is one of the least tax-efficient value factor funds. I hold AVDV in my HSA and Roth IRA, and the more tax-efficient AVIV (Avantis International Large-Cap Value) as my only taxable value factor fund.

[hiddenpower]

The 1099 will show how much foreign tax was withheld, but you need to go to Avantis's web site to find out how much of the dividend was foreign, which you will need for Form 1116. For 2022, Avantis ETF Tax Information (XLS)

So if you DCA throughout the year, you'll need to manually differentiate all the lots and figure out which dividends impacted which? Seems potentially quite tedious and almost untenable with lots of lots.

[grabiner]

The 1099 will show how much foreign tax was withheld, but you need to go to Avantis's web site to find out how much of the dividend was foreign, which you will need for Form 1116. For 2022, Avantis ETF Tax Information (XLS)

So if you DCA throughout the year, you'll need to manually differentiate all the lots and figure out which dividends impacted which? Seems potentially quite tedious and almost untenable with lots of lots.

At every fund provider I have seen, either there is only one total for the year, or the ratios for each dividend are the same. Thus, if a fund paid a dividend of $2.00 per share which was $1.80 per share foreign, then you should be able to assume that your $4000 dividend from the fund was $3600 foreign even if your number of shares changed during the year.

[hiddenpower]

The 1099 will show how much foreign tax was withheld, but you need to go to Avantis's web site to find out how much of the dividend was foreign, which you will need for Form 1116. For 2022, Avantis ETF Tax Information (XLS)

Thanks! I didn’t realize this would be the case with funds that rotate actively. I assumed it would change drastically

So if you DCA throughout the year, you'll need to manually differentiate all the lots and figure out which dividends impacted which? Seems potentially quite tedious and almost untenable with lots of lots.

At every fund provider I have seen, either there is only one total for the year, or the ratios for each dividend are the same. Thus, if a fund paid a dividend of $2.00 per share which was $1.80 per share foreign, then you should be able to assume that your $4000 dividend from the fund was $3600 foreign even if your number of shares changed during the year.