2021 tax costs for value ETFs

[grabiner]

I redid the calculations from Tax costs for US and international value ETFs, to see which value ETFs should be held in a taxable account.

2021 foreign stock yields were so much higher than US stock yields that US stocks were more tax-efficient, whether you are a factor investor or not. Also, in contrast to the 2020 numbers, Avantis's international ETFs were more tax-efficient than even the blend international ETFs, because Avantis had more qualified dividends to offset its lower foreign tax credit. Avantis US Small-Cap Value was also very tax-efficient.

For each fund, the dividend yield is computed as the taxable dividend divided by the 12/31/21 share price. Note that this will be more than the distribution yield for international funds, because of the foreign tax credit.

To compute your own 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%).

The table below includes the non-factor but popular VBR, Avantis's non-value funds when there is no value fund or insufficient data for it, and includes the blend indexes for comparison.

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
VTI     Vanguard Total Stock Market            1.21%    0%       95%
VB      Vanguard Small-Cap                     1.24%    0%       82%
VBR     Vanguard Small-Cap Value               1.75%    0%       85% 
VFVA    Vanguard Factor Value                  1.69%    0%      100%
AVUS*   Avantis US Equity                      1.08%    0%      100%
AVUV    Avantis US Small-Cap Value             1.28%    0%      100%

VXUS    Vanguard Total International           3.29%  5.9%       65%
VSS     Vanguard FTSE Ex-US Small-Cap          2.97%  7.7%       47%
IVLU    iShares MSCI Factor Value (large-cap)  3.39%  4.2%       92%
AVDE*   Avantis International (large-cap)      2.59%  5.0%       78%
AVDV    Avantis International Small-Cap Value  2.51%  4.4%       71%

VWO     Vanguard Emerging Markets              2.94% 10.3%       38%
AVEM*   Avantis Emerging Markets               2.82%  7.7%       58%

* - Avantis non-factor funds

The newest Avantis funds (AVLV for US large value, AVIV for foreign large value, AVES for emerging markets value) do not have enough data to estimate their tax cost. All three report 100% qualified dividends and no foreign tax credit, but only on a few months of data and a single dividend. Yields are not reliable until there is a full year of data, particularly for foreign funds since foreign dividends are not distributed evenly over the year, and Avantis doesn't publish an SEC yield.

(table edit to correct AVEM data; thanks txaggie)

[txaggie]

David thank you for calculating the tax costs for value ETFs. This is very useful information.

I believe that I spotted two problems with the values for AVEM.

1. The 2021 qualified should be 58% instead of 71%.
Source: https://www.avantisinvestors.com/conten ... ncome.html

2. The yield is not correct for AVEM. Here are my yield calculations.
dividend yield = taxable dividend divided by the 12/31/21 share price = 1.787688 / 63.32 = 2.82%
distribution yield = dividend distribution divided by the 12/31/21 share price = 1.6502 / 63.32 = 2.61%
My dividend and distribution yield are both higher than your dividend yield.
Source: https://www.avantisinvestors.com/conten ... antis.xlsx

Current values for AVEM:

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
AVEM*   Avantis Emerging Markets               2.56%  4.4%       71%

Updated values for AVEM based on my calculations:
FTC = foreign tax paid / taxable dividend = 0.137488000 / 1.787688 = 7.7%

Code: Select all

Ticker  Name                                   Yield  FTC  Qualified
AVEM*   Avantis Emerging Markets               2.82%  7.7%       58%

[muffins14]

I redid the calculations from Tax costs for US and international value ETFs, to see which value ETFs should be held in a taxable account.

For future iterations, would you consider adding FNDF and FNDC for comparison? In the past, they have been quite competitive in terms of low yield and high QDI.

[ziggny]

If anyone’s willing to do the work, would love to see a 2022 update to this data.

[grabiner]

If anyone’s willing to do the work, would love to see a 2022 update to this data.

I will do it in 2022, but I can't do it until the fund providers publish their data. The dividend payments have been published, but it is important how much of the dividend is qualified and how much is withheld as foreign tax.

[ziggny]

I really appreciate that. Thank you!

[VictorStarr]

If anyone’s willing to do the work, would love to see a 2022 update to this data.

I will do it in 2022, but I can't do it until the fund providers publish their data. The dividend payments have been published, but it is important how much of the dividend is qualified and how much is withheld as foreign tax.

Thank you for doing this, it is very useful and actionable information.