One of the compelling reasons to invest in an Exchange Traded Fund is that very few funds actually pass through capital gains to their investors. In comparison investments in mutuals funds almost always pass through capital gains, even if you were not invested in the fund for the whole year. This simply means that even if you did not sell your mutual fund, you still have reported gains that you will pay tax on. This erodes your overall rate of return.
IndexUniverse.com recently published a report with all the ETFs that passed through capital gains to their investors. Apparently in 2011 only 93 ETFs made this list. I was very impressed with this report as it is the only one of its kind that I am aware of. You can see the list directly on their site HERE.
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