Invesco ETFs

Optimize your tax strategies with Invesco

Understand how to effectively manage portfolios by implementing two tax strategies to help your clients keep more of what they earn.

Two ways to streamline tax season

Taxes are usually seen as a time-consuming burden, and many don’t know where to start. Investors are often faced with significant taxes on their investments, which reduces their returns and leaves them short of their investing goals. An effective tax management strategy can help investors meet their financial goals.

1.  Minimizing capital gains

Minimizing capital gains will help your clients keep more of what they earn. There are two important types of capital gains to know: 1) Investor-Driven: These are capital gains from selling a fund, and 2) Fund-Driven: These occur when a fund distributes capital gains to its shareholders. Here are three strategies to minimize fund-driven capital gains:

  • Replace mutual funds that have high fees and high capital gains distributions and underperform with ETFs
  • Reduce exposure to repeat offenders and consider reallocating a portion to ETFs
  • Potentially adjust future investment allocations to ETFs
Woman exploring the mountains

ETFs have historically paid minimal capital gains, if any

Capital gains distributions have been less frequent and smaller for US equity ETFs. In some instances, capital gains may be distributed, but these are few and far between, given the ETF creation and redemption process.

Average annual capital gains distribution as a % of NAV of US equity mutual funds and equity ETFs over the last 10 years

 

Value

Blend

Growth

Large cap

Mutual funds: 4.71%
ETFs: 0.24%
Mutual funds: 4.95%
ETFs: 0.37%
Mutual funds: 7.25%
ETFs: 0.38%

Mid cap

Mutual funds: 4.99%
ETFs: 0.25%
Mutual funds: 5.37%
ETFs: 0.17%
Mutual funds: 6.62%
ETFs: 0.32%

Small cap

Mutual funds: 5.23%
ETFs: 0.28%
Mutual funds: 5.95%
ETFs: 0.19%
Mutual funds: 7.55%
ETFs: 0.15%

Source: Morningstar as of 12/31/23. 10-year period from 1/1/14-12/31/23.

Consider swapping to tax-efficient ETFs

In 2023, only 2% of our ETFs distributed capital gains for one of the lowest percentages in the industry.1 And many, such as QQQM, XMMO, XSMO, RSP, RWK, and RWJ, have never paid capital gains distributions in their lifetime.

Ticker Why Swap Size Category Download
QQQM About the benefits Large cap Growth Fact sheet
XMMO About the benefits Mid cap Growth Fact sheet
XSMO About the benefits Small cap Growth Fact sheet
RSP About the benefits Large cap Blend Fact sheet
XMHQ About the benefits Mid cap Blend Fact sheet
XSHQ About the benefits Small cap Blend Fact sheet
RWL About the benefits
Large cap Value Fact sheet
RWK About the benefits
Mid cap Value Fact sheet
RWJ About the benefits
Small cap Value Fact sheet

Returns less than one year are cumulative. Performance data quoted represents past performance. Past performance is not a guarantee of future results; current performance may be higher or lower than performance quoted. Investment returns and principal value will fluctuate and Shares, when redeemed, may be worth more or less than their original cost. See invesco.com to find the most recent month-end performance numbers. Market returns are based on the midpoint of the bid/ask spread at 4 p.m. ET and do not represent the returns an investor would receive if shares were traded at other times. Fund performance reflects fee waivers, absent which, performance data quoted would have been lower. View Standardized Performance here. Source: Bloomberg LP, as of 9/30/24. 

2.  Implementing tax-loss harvesting strategies

Tax-loss harvesting can be an effective strategy for turning your clients’ investment losses into tax savings. Even if you sell an investment to harvest the loss, you can still maintain exposure to the asset class or investment type by swapping it to an ETF. ETFs may allow your clients to stay invested in a similar exposure without violating the Internal Revenue Service’s wash-sale rule. Here’s how it works in three simple steps:

  • Sell your clients’ underperforming investments
  • Harvest their losses to offset capital gains and/or ordinary income
  • Replace their current assets with similar Invesco ETFs
People harvesting together

Consider our ETFs to maintain the same exposure in the market

Based on year-to-date returns across asset classes, we've identified Morningstar categories with negative price returns. Clients who have experienced investment losses in their portfolios could turn that into tax savings by selling the investments to offset capital gains taxes and reinvesting into an ETF with similar exposure.

Morningstar performance

Swap idea

Category

YTD

1Y

2Y

3Y

5Y

Ticker

 Download

US Fund Equity Energy

-1%

-7%

1%

13%

7%

RSPG

Fact sheet

US Fund Muni National Long

1%

6%

2%

-4%

-2%

PZA

Fact sheet

US Fund Commodities Broad Basket

1%

-8%

-11%

-6%

-1%

PDBC

Fact sheet

US Fund Long Government

2%

6%

-4%

-12%

-7%

GOVI

Fact sheet

US Fund Intermediate Core-Plus Bond

2%

6%

1%

-5%

-3%

GTO

Fact sheet

US Fund Emerging Markets Bond

3%

8%

4%

-6%

-4%

PCY

Fact sheet

US Fund Preferred Stock

6%

10%

1%

-5%

-2%

PGX

Fact sheet

Source: Morningstar, as of 9/15/24

Footnotes

  • 1

    Source: Morningstar as of 12/31/23.

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