Reading 31: Equity Portfolio Management－LOS e

Index mutual funds usually pay lower license fees to index providers than ETFs do. Index mutual funds are also less tax efficient. Index mutual funds usually sell securities to satisfy redemptions, which increases taxes. ETFs ordinarily do not engage in taxable events to satisfy redemptions, as the ETF may exchange ETF shares for the underlying. Also, an ETF investor usually sells their ETF shares to another investor, so there is no tax implications for the ETF itself.

Equity futures contracts have a finite life and must be periodically rolled over into a new contract whereas ETFs have a theoretically infinite life. Using basket trades and futures contracts to establish short positions may be problematic because a basket may not be shorted if one of the components violates the uptick rule. The uptick rule states that a security may not be shorted if the last price movement was a decline. ETFs are not usually subject to the uptick rule.
  

The trading costs in an equity total return swap are usually lower than that from trading in the underlying asset. The investor is usually not responsible for foreign withholding taxes either because they will be the swap dealers responsibility, who may be in a tax advantaged position relative to the investor.