Episode summary
A $40 Billion ETF Shuffle Helps Foreigners Dodge US Taxes | Bloomberg Businessweek
Bloomberg Businessweek Daily
· · Hosts: Carol Massar, Tim Stenovec
Summary
A huge, recurring ETF rotation is letting foreign investors sidestep U.S. dividend taxes without breaking the law. Every quarter, about $40 billion or more moves out of BlackRock’s iShares Core S&P 500 ETF, IVV, into Vanguard’s S&P 500 ETF, VO, then shifts back a few days later after the dividend date passes.
The guests said the trade is driven by foreign investors who do not want the dividend and therefore sell before they become entitled to it, then buy an almost identical fund after the payout window closes. The pattern has become more visible since around September 2024 and now includes more products, including some State Street funds, as firms adjust dividend dates and investors spread the flows across vehicles.
The guests estimated the tax benefit was about $147 million in 2025, but they emphasized that the flows required to capture that sum are enormous. They also said the underlying hedge-fund trade is really about earning a spread on cash and futures, with the tax complication creating a need to route money through ETFs in a predictable quarterly cycle.
Key takeaways
- The guests said foreign investors use near-identical S&P 500 ETFs to avoid U.S. dividend tax by switching around the quarterly ex-dividend date.
- They estimated the tax avoided in 2025 at about $147 million, even though roughly $40 billion or more can move each quarter.
- The trade has become more visible since around September 2024 and now spans more funds, including some State Street products.
- The guests said Treasury is not worried about this ETF version of the trade, unlike some other tax-avoidance structures.
- The flows are so large and predictable that they can affect rankings among the biggest S&P 500 ETF providers.
Notable quotes
“Every 3 months, like clockwork, investors pull $40 billion or more from Black Rockck ETF that tracks the S&P 500, deposit most of it into a near identical Vanguard product”
“So there's this massive movement in the market. People are going into going out of one position into another one and then back”
“The reason is these are foreign investors who want to avoid tax on the dividend”
“they've the the the tax could kind of ruin this this trade. So they have to find a way around the tax”
How the episode opens
Bloomberg Audio Studios podcasts, radio news.
You're listening to Bloomberg Business Week with Carol Masser and Tim Stenc on Bloomberg Radio. It is today's big take. It's one of the most read stories on the Bloomberg terminal.
It is a Bloomberg exclusive. I'm just going to read the beginning of it because I think this does a very good job of describing what exactly is going on in this intricate world of ETFs with different letters. Every 3 months, like clockwork, investors pull $40 billion or more from Black Rockck ETF that tracks the S&P 500, deposit most of it into a near identical Vanguard product.
A few days later, they reverse the trade and the money flows back the other way. We are talking about VO and IVV. Those are the tickers.
The Black Shares, Black Rockck eyesshares, core S&P 500 ETF and the Vanguard S&P 500 ETF. On the buy line, Zach MIT a reporter for Bloomberg News. Also with us, Denita Seikova, cross asset reporter for Bloomberg News.
They both join us here in the Bloomberg Interactive Brokers studio. It's all about taxes, Zach. How do why what are they avoiding here and who are who is moving this money?
Right? So there's this massive movement in the market. People are going into going out of one position into another one and then back.
The reason is these are foreign investors who want to avoid tax on the dividend. So just before the date when they would be owning that ETF would entitle them to the dividend, they sell it. They buy an almost identical ETF, hold it for a couple days, and then sell that one and go back to the one they were in before.
Does it only happen in a month where there are gains?
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- etf tax strategy
- foreign investors
- s&p 500 tracking funds
- wash-style rebalancing
- capital flows
Companies and tickers mentioned
- BLK
- BlackRock
- Vanguard Group
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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