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Swap-based ETFs are built differently than other kinds of ETFs. How differently? Learn how they work in the MoneySense Glossary.
Swap-based ETFs are a type of exchange-traded fund (ETF) that doesn’t directly hold stocks or bonds. The fund uses a “total-return swap” that delivers the same performance as an index, but without actually investing in any of the companies listed on the index. These funds don’t pay dividends or interest like a typical ETF, so they can be more tax-efficient because you don’t pay any taxes while you hold the units in the fund. When you do sell, you will pay capital gains tax on any earnings.
Example: “Swap-based ETFs do not pay dividends or interest in cash.”
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