Are Vanguard’s Canadian-listed ETFs at Risk of a Major Capital Gains Distribution?

The Vanguard Group launched its first ETFs back in 2001, and has since shaken up the asset management industry by gathering more new assets in the U.S. than anyone, be it through the mutual fund or the ETF channel. The not-for-profit firm was able to underprice everyone else on day one, levering up its massive assets with its unique multiple-share-class structure. However, some industry participants raised concerns about this structure eventually resulting in large taxable capital gains distributions. This paper reviews the risk of a capital gains distribution specific to Vanguard ETFs, more specifically from the perspective of Canadian taxable investors. We conclude that Vanguard’s multiple-share-class structure is very unlikely to trigger large capital gains distributions.

This report was written by Raymond Kerzérho, PWL Capital Inc. The ideas, opinions, and recommendations contained in this document are those of the authors and do not necessarily represent the views of PWL Capital Inc.