Major institutions are moving roughly $40 billion between BlackRock Inc.'s iShares Core S&P 500 ETF (IVV) and Vanguard Group's S&P 500 ETF (VOO) each quarter to avoid a 30% US tax on dividends paid to foreign investors. The strategy exploits different dividend distribution dates between the near-identical funds. Investors sell one fund before its ex-dividend date and buy the other, then reverse the trade days later.

This allows them to capture the dividend's value through price appreciation — which isn't taxable for foreigners — rather than receiving the taxable cash payout. The pattern, visible since 2023, likely saved foreign investors about $147 million in US taxes last year. State Street Investment Management's Matt Bartolini confirmed large institutions use ETFs for "continuous exposure without taking receipt of the dividend." State Street recently adjusted dividend timing on its SPDR Portfolio S&P 500 ETF (SPYM) to facilitate similar toggling with its SPDR S&P 500 ETF Trust (SPY).

BlackRock declined to comment on IVV's dividend timing change. A US Treasury Department official said the practice isn't currently under scrutiny. The maneuver adds to growing tax-minimization techniques in the $16 trillion US ETF market.