$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), which both track the same index but distribute dividends on different days each quarter. This allows foreign institutions to avoid U.S. dividend withholding taxes by rotating capital between the two funds before each payout, saving an estimated $147 million in taxes last year. The strategy involves selling one fund just before its ex-dividend date and buying the other, converting taxable dividends into untaxed capital gains. While legal, this practice shifts friction costs onto domestic shareholders who hold either ETF during these rotations. The trade became viable with the proliferation of low-cost S&P 500 ETFs like VOO and IVV. U.S. Treasury officials have expressed concerns about various tax-avoidance strategies involving ETFs but clarified that direct rotation between funds is not their current focus, instead targeting more complex structured products.
Topics: BlackRock IVV dividend taxes ETFs institutional trading Vanguard VOO