ETF industry perspectives
November 06, 2025
In this edition of ETF Industry Perspectives, we spotlight tax-loss harvesting opportunities in fixed income ETFs and examine why active ETFs are becoming more popular.
Tax-loss harvesting (TLH) in fixed income ETFs: With equities reaching record highs, tax-loss harvesting opportunities are scarce in stocks but remain viable in fixed income, especially in long-term municipal bond and Treasury ETFs. The spike in long-term yields earlier in 2025 created fresh TLH opportunities, though recent rate cuts have started to erase some losses. Investors may want to act promptly and consult tax professionals to help avoid wash sales. TLH strategies include swapping between maturity-banded and total Treasury ETFs, switching between active and passive management, or changing issues or index providers to maintain exposure while adhering to wash sale rules.
The rise of active equity ETFs: Active equity ETFs are gaining traction because of their lower costs, tax efficiency, and transparency compared with mutual funds. Since early 2022, active ETFs have accounted for over a quarter of all ETF inflows, with active equity ETFs making up nearly 60% of those flows.1 The SEC’s 2019 “ETF Rule” has facilitated more launches, and traditional managers are increasingly offering ETF versions of flagship mutual funds. Investor demand is driven by a preference for low costs, with the lowest quartile attracting about 60% of flows.2 This trend suggests a lasting shift toward active management within the ETF structure.
1 Source: Morningstar, Inc., from January 1, 2022, through August 31, 2025.
2 Investment Company Institute, as of December 31, 2024. The average expense ratio for active equity mutual funds was 0.66%, compared with 0.48% for active equity ETFs.
Notes:
For more information about Vanguard funds and Vanguard ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
All investing is subject to risk, including the possible loss of the money you invest.
Investments in bonds are subject to interest rate, credit, and inflation risk.
Municipal bond fund distributions, including any market discount recognized by the Fund's investments, may be taxable as ordinary income or capital gains. A majority of the income dividends that you receive from the Fund are expected to be exempt from federal income taxes. However, a portion of the Fund’s distributions may be subject to federal, state, or local income taxes or the federal alternative minimum tax. You should consult your own tax advisor with respect to any particular U.S. or non-U.S. tax consequences of your investment in the Fund.
U.S. government backing of Treasury or agency securities applies only to the underlying securities and does not prevent share-price fluctuations. Unlike stocks and bonds, U.S. Treasury bills are guaranteed as to the timely payment of principal and interest.
Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax advisor before taking action.