A new ETF is putting the “end” in “dividend.”

The Roundhill S&P 500 No Dividend Target ETF, which began trading earlier this month, accomplishes that by moving its holdings from one underlying index exchange-traded fund to another, just ahead of dividend payments, intending to avoid them altogether. It’s a strategy for investors who don’t want the tax consequences of dividends paid out by S&P 500 stocks.

“Prior to and since XDIV’s launch, we’ve received a significant number of inquiries from a wide range of ETF investors, including direct retail, financial intermediaries and institutional investors,” said Dave Mazza, CEO of Roundhill Investments. “Over the longer term, we believe that institutional investors, particularly non-US investors, will find the greatest value in the benefits of this innovation.”

Axing the Taxing

ETFs, already valued for their tax benefits, have seen a few developments recently that extend such perks. For the very wealthy, several companies have rolled out products that take advantage of 351 exchanges, where assets in stocks with years of built-up capital gains can be transferred to ETFs on a tax-deferred basis. The Roundhill fund is different, though, with a focus on minimizing taxable income by sidestepping dividends.

Having such a strategy in the already tax-efficient wrapper of an ETF makes sense, said Chris Chen, owner of Insight Financial Strategists. “Stocks will tend to go down on the ex-dividend date. Therefore it may make sense to sell it before it goes ex-dividend and buy it back right afterwards, after it has gone down,” he said.

A few details about the Roundhill S&P 500 No Dividend Target ETF:

• It is designed to rotate among different S&P 500 ETFs, including the iShares Core S&P 500 ETF (IVV), SPDR S&P 500 ETF Trust (SPY) and Vanguard S&P 500 ETF (VOO). Currently, 99.99% of its assets are in the SPDR Portfolio S&P 500 ETF (SPLG), though it may invest in more than one ETF at a time.
• It’s actively managed, with gross fees at 21.5 basis points, though waivers bring the net expenses down to 8.49 bps.

Friends with Dividends: Recent research sponsored by Vanguard found benefits to investing in dividend-paying stocks. Researchers found that 74% of the time, dividend-stock owners reinvest their dividends rather than pocketing the money. Further, such investors tend to stick with dividend-paying stocks because they see the companies as being fiscally responsible.

“Equity income investors enjoy the utilitarian benefits of returns on their funds, but also the expressive and emotional benefits that accompany perceiving the companies whose stocks they hold as more trustworthy and caring,” the authors wrote.

The SEC has hit pause on allowing in-kind redemptions for crypto ETFs — for now, at least.

Crypto issuers like BlackRock, VanEck, Fidelity and WisdomTree have sought to let investors redeem their shares for underlying crypto assets directly (in this case, Bitcoin or Ether), but have all been delayed. In-kind redemptions let funds trade underlying assets for new ones, as opposed to in-cash redemptions, which require the assets to be sold for cash.

Still, experts said approval is probably inevitable, with the move set to elevate crypto strategies’ efficiency by allowing a mechanism that has only been available for traditional ETFs up until now. Approval would also mark the latest step for crypto ETFs toward becoming like their traditional counterparts. “The cash is just an extra step that typically doesn’t happen with other ETFs,” said Roxanna Islam, head of sector and industry research at VettaFi.

Road to Redemption

The SEC has approved a slew of spot Bitcoin ETFs in the roughly 18 months they’ve been around, and now the agency is flooded with proposals from fund managers seeking to offer in-kind redemptions. The strategy is the preferred mechanism for traditional ETFs because it’s less clunky and more tax efficient, but currently, institutional investors are required to sell crypto ETF shares for cash. In-kind redemption approval is set to simplify the process, said Islam. The move will therefore benefit institutional investors more than retail, she added, but will still benefit the latter “in the long run,” by creating more market efficiency across the board. Some funds that have applied to offer in-kind redemptions include:

• BlackRock, which filed to permit in-kind redemptions for its iShares Ethereum Trust (ETHA) and had its decision delayed earlier this month.
• Fidelity, which asked for in-kind redemptions for both the Fidelity Wise Origin Bitcoin Fund (FBTC) and the Fidelity Ethereum Fund (FETH) and had its decision postponed in May.
• VanEck, which requested in-kind redemptions for its spot Bitcoin ETF, VanEck Bitcoin ETF (HODL), and had its verdict pushed back in April.

What’s the HODL-Up? So why has the SEC delayed greenlighting in-kind structures for digital assets? One reason is because the agency tends to exercise extra caution around crypto-related decisions in general, Islam said. Another might be that regulators need more information on how they can “protect against fraud and manipulation,” said Morningstar analyst Bryan Armour. “My guess is they need more time to process the information and work with exchanges to shore up any remaining concerns.”

Tidal Financial Group had quite a different name when it was founded in 2012. Back then, it was called Toroso, which means “bull” and “bear” in Spanish.

Now, the New York City-based firm has found success as a third-party service provider that helps build and manage exchange traded funds, and its list of clients keeps growing. Co-founder and Chief Investment Officer Michael Venuto sat down with ETF Upside to talk about the company’s roots and what excites him about the future of the business.

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