$40 Billion Quarterly Trade Between VOO and IVV Affects Retirement Funds
A $40 billion institutional trade cycles through Vanguard's S&P 500 ETF (VOO) every quarter, impacting retirement accounts. Foreign investors exploit the staggered ex-dividend dates between VOO and BlackRock’s iShares Core S&P 500 ETF (IVV), both of which track the same index but distribute dividends on different days each quarter. This strategy allows overseas institutions to avoid U.S. dividend withholding taxes by switching capital between funds before each payout, saving an estimated $147 million in taxes last year. The tax avoidance method works because selling shares just before ex-dividend dates converts taxable dividends into untaxed capital gains. While legal, the practice shifts costs onto domestic shareholders who hold either fund during these rotations. The U.S. Treasury has expressed concerns about such ETF-based tax strategies but clarified that direct rotation between VOO and IVV is not a current focus of scrutiny. This strategy became viable with the proliferation of low-cost S&P 500 ETFs like VOO and IVV, enabling institutional investors to switch seamlessly across funds. The trade has grown in volume since it first appeared in fund flows in 2023.
