Wall Street’s Dividend Tax Dodge Arrives in Fixed-Income ETFs

A pair of new bond exchange-traded funds is making it easier than ever for investors to avoid taxes on coupon payments.

The F/m Compoundr High Yield Bond ETF (ticker CPHY) and the F/m Compoundr U.S. Aggregate Bond ETF (CPAG) began trading this week with the goal of transforming “interest income into unrealized capital gains,” according to F/m Investments’ website. To do so, the ETFs will sell off holdings prior to their dividend dates to avoid receiving a taxable distribution.

The two funds join a growing list of ETFs designed to further minimize investors’ tax bills. The ...