It is my understanding that if an investor buys an open ended mutual fund and the fund distributes a capital gain to the investor then that gain can be offset by the investor selling a stock (or another mutual fund) for a capital loss. Am I right about this? Is the same true for an ETF?
If the answer is yes to the first question and no to the second, it seems to me that this is a significant advantage for mutual funds.
The taxes on the dividends or capital gains of an ETF or a mutual fund are treated identically by the IRS. The big difference tax wise isn't ETF vs mutual fund, it is taxable vs non-taxable vs tax defered.
The investment inside a 401(k) or IRA or the Roth versions of those will either avoid taxes entirely, or defer the taxes on dividends or capital gains.