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Vanguard ETF Structure Explained - Pros and Cons

Key Takeaways

  1. Vanguard's ETF-as-a-share-class structure has several benefits and one key drawback: a unique source of tax risk that is absent in stand-alone ETFs.
  2. I don't think this is a risk that investors should fret over, as it's unlikely that Vanguard investors will flock toward the exits en masse, the risk can be managed, it varies across market environments, and it is diminishing as the ETFs are growing more rapidly than the mutual fund share classes.
  3. Investors can assess the level of risk in a Vanguard ETF by looking at its size relative to the fund and trying to understand the nature and objectives of shareholders in the mutual fund share classes.
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