Low fees, reduced taxation: Understanding the efficiencies available to passive ETFs

Janus Henderson’s Natasha Sibley and Ben Jones examine how ETF replication methods can affect the returns ultimately received by investors.

• Physical ETFs holding US shares can lose part of their dividend income to withholding tax, creating a persistent drag versus the index.
• Synthetic ETFs can avoid this tax impact by using swaps to deliver the total index return, historically improving efficiency in US equities.
• For synthetic ETFs, performance drag mainly comes from the total expense ratio and swap spread, making transparent and competitive costs essential.

Explore the full report to understand how ETF structure can influence long-term investment efficiency.