Ask the Manager: Sofia Massie on Beating Tax Drag with Smarter Structure

In this edition of Ask the Manager, we spoke with young entrepreneur and founder of LionShares Sofia Massie about TOT, a new “total return” ETF that keeps dividends inside the fund to reduce tax drag and boost compounding. Her goal: make long-term investing simpler, smarter, and more efficient.

First of all, what is TOT’s investment strategy?

TOT’s strategy is right there in the ticker. It aims to track the total return of the total U.S. stock market.

“Total return” means that instead of paying dividends out to investors, the fund aims to keep returns inside of the fund where they can continue compounding. This can improve the fund’s after-tax performance.

Additionally, minimizing distributions can remove the need to reinvest dividends, helping to prevent unallocated cash and reducing tracking error.

What is tax drag and why should investors care?

When ETFs pay dividends, that income can be taxed at the federal, state, and city level, even if those dividends are reinvested.

This reduction in potential returns is called “tax drag”, and it can have a large impact due to the compounding effects year after year.

Over a 10 year period, some investors’ returns may be about 12% lower when they invest in a regular dividend-paying ETF compared to a total return index.

Why do ETFs usually pay dividends and why is TOT unique?

Usually, ETFs pay dividends because they are required to distribute any income they receive. TOT uses active management to minimize the fund’s need to make distributions.

Typically, TOT holds other ETFs that track the total U.S. stock market and strategically rebalances between them.

Most investors wouldn’t be able to achieve this “total return” exposure on their own because TOT uses distinctive rebalancing methods that rely on the ETF wrapper.

How does TOT fit into an investor’s portfolio?

TOT was designed to be the core building block for the portfolios of long-term, cost-sensitive investors. By seeking to track the total U.S. stock market, TOT aims to provide low-cost diversification, giving investors exposure to over 2000 companies.

TOT is designed to replace other broad market ETFs and give investors a potentially more tax-efficient option.

You’re up against big players in the industry, how are you going to compete?

From the ground up, TOT was designed to be low-cost and efficient. With our current fee waiver, the fund has a 0.07% net expense ratio. Because the total return strategy is so novel, we’re currently focusing heavily on investor education and building awareness.

What inspired you to found LionShares?

My background is actually in trading! I was a quant trader at Jane Street, where I specialized in ETF options. I did the behind-the-scenes trading that enabled many ETFs to operate and learned the ins and outs of the ETF wrapper.

One day, a lightbulb went off, and I came up with the idea to create a total return ETF. I realized there was a gap in the market for an efficient, low-dividend fund that tracked the full U.S. stock market.

In January of 2025, I left my old position and founded LionShares with the goal of making TOT a reality. I’m proud to say that on September 3rd, that vision came true, and TOT officially launched.