iShares - Tax Efficiency

The tax implications of investing are all too often overlooked by investors and their advisors. Yet taxes can have a surprisingly negative impact on long term portfolio returns. In some cases, investors may be losing as much or more in investment return as paid in fees once individual tax consequences are taken into consideration. Stellar returns from a manager don't mean much if most of that return evaporates to the investor on an after-tax basis. The consequences of paying taxes on top of manager underperformance can be especially painful — as many investors experienced in 2008. In a low return environment, managing taxes becomes even more important when building an efficient portfolio.

The good news is that not all investments are created equal and investors have options. In considering those options, investors should evaluate after-tax returns. Fees and taxes can represent major hurdles to active manager outperformance; in fact, after taking them into consideration, the average manager often fails to add value over their benchmark. Combined with the sheer difficulty in selecting winning managers over time, many investors may be better served by holding iShares ETFs for core portions of their portfolios.

With an established record in capital gains management across asset classes, iShares exchange traded funds may offer a compelling solution. Only two of the more than 170 iShares funds paid out capital gains distributions in 2008. (All registered investment companies, including iShares Funds, are obliged to distribute portfolio gains to shareholders at year's end).

iShares ETFs achieve their tax efficiency in a number of ways:


	1.	Lower portfolio turnover than actively managed funds.

	2.	Protection from shareholder activity that limits taxable consequences to transacting shareholders. Of course, if you sell an iShares ETF at a gain, the normal laws still apply. Trading shares of the iShares Funds will also generate transaction expenses.

	3.	Experienced portfolio management that focuses on managing tax consequences throughout the year.

"In this world, nothing is certain but death and taxes," Benjamin Franklin famously remarked. We at iShares can't do anything about the former, but we can about the latter. At a time when being efficient matters more than ever, iShares ETFs provide core solutions to help build low cost, tax smart portfolios. iShares ETFs can help advisors create tax efficient portfolios that give the transparency needed for today's realities and tomorrow's challenges. The tax man may still have to be paid. Just not as much.

We've assembled some key tax resources for you as we head into the New Year, provided below.