New Roundhill ETF to track S&P 500 performance, avoid tax esposure

Wall Street’s latest tax dodge doesn’t hide in the Cayman Islands or rely on complex derivatives. It’s engineered to turn a publicly traded fund into a tax-minimizing machine that hums quietly on autopilot.

While dividends have long been a defining feature of stock investing — a sign of corporate discipline and investor reward — Roundhill Investments plans to launch the S&P 500 No Dividend Target exchange-traded fund on July 10 with the ticker XDIV. Its ambition is simple but strategic: track the performance of the famous benchmark while dodging its payouts. The fund will sell holdings just before their dividend dates — steering income away from ETF shareholders and, in the process, away from their tax bills. 

As stock benchmarks have climbed in recent years and tax bills have grown alongside them, asset managers are building products that give investors more control over when — and whether — they owe taxes. These rely on sophisticated mechanisms to reduce taxable events, essentially transforming the fund structure into a programmable tax-sensitive tool. 

READ MORE: New ‘investor-friendly’ ETFs unlock tax deferral on appreciated assets

These strategies are executed through U.S.-regulated ETFs that trade on public exchanges, offering investors easy access and the kind of fiscal flexibility once reserved for private wealth clients. 

It’s “for people who are tax-aware — intended for people who want to have S&P 500 exposure without the downside of distributions,” said Dave Mazza, chief executive officer at Roundhill. “There hasn’t been a product in the market to meet the needs of investors for this.” 

While most ETFs already sidestep capital gains by using a mechanism known as in-kind redemptions, XDIV’s strategy takes aim at a different category of tax exposure: ordinary income. The fund, which will charge a 0.0849% fee at the start, will invest in other S&P 500 ETFs, such as Vanguard’s VOO, but will exit positions just before ex-dividend dates. It will then rotate from one such index fund into another that isn’t about to pay a distribution. 

READ MORE: Using tax-aware long-short vehicles to track down alpha

That could appeal to clients who don’t reinvest payouts consistently — which can be a drag on performance — or high earners seeking to limit taxable income in brokerage accounts.

“There are certain investors who don’t want taxable income — there’s institutional investors who only want the total return for an investment,” Mazza said. “Then, there’s tax-aware mom-and-pop investors who are focused on long-term compounding, but they don’t want to receive current income because that means their total income — even if it’s modest compared to what they may be making from their compensation — is still going to be taxable.”

Skipping the dividend isn’t an own goal. When a company pays out cash to shareholders, its stock typically falls by the same amount, so by selling just before that moment, the ETF gives up the payout but also sidesteps the price dip. In other words, the value of the trade should net out, the thinking goes. What changes is how — and when — investors owe taxes.

READ MORE: Trillions in SMA assets ripe for tax-friendly ETF ‘exit valve’

XDIV joins a growing wave of tax-optimized offerings. Others, like the Burney U.S. Factor Rotation ETF, convert entire portfolios into the wrapper without triggering a taxable event. Cambria’s Tax Aware ETF, meanwhile, seeded its portfolio with appreciated stocks, allowing investors to swap exposures without formally realizing gains. 

And more products that hew to this idea could come to market soon. A firm named LionShares in mid-June filed for an ETF that would invest in other ETFs tracking the large-cap U.S. equity market, but would at the same time look to “minimize” distributions, according to its paperwork. Earlier, F/m Investments, a Washington, D.C.-based asset manager with a growing ETF lineup, filed for a number of new bond products that would swap between different holdings in order to dodge dividend payouts, something that industry veteran Dave Nadig dubbed “clever.” 

“The ability of ETFs to sidestep capital gains isn’t just a technical quirk anymore — it’s a core selling point, and issuers are leaning into this edge,” said Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence.