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Expenses and dividend taxes affect European index fund and ETF returns

Expenses and dividend taxes affect European index fund and ETF returns

25-01-2010 | Research

European index funds and exchange-traded funds underperform their benchmarks by 50 to 150 basis points per annum.

  • David Blitz
    David
    Blitz
    PhD, Executive Director, Head of Quant Selection Research
  • Laurens Swinkels
    Laurens
    Swinkels
    PhD, Researcher

The explanatory power of dividend withholding taxes as a determinant of this underperformance is at least at par with fund expenses. Dividend taxes also explain performance differences between funds that track different benchmarks and time variation in fund performance. Our results imply that not only fund expenses, but also dividend taxation can result in a substantial drag on the performance of mutual funds.

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