Most of Vanaguard's ETFs are just another class of the overall mutual fund. So for example, the Vanguard Total Stock Market Index Fund has four (I think) share

Most of Vanaguard's ETFs are just another class of the overall mutual fund. So for example, the Vanguard Total Stock Market Index Fund has four (I think) share classes: Investor, Admiral, Institutional, and ETF. Vanguard arranges things such that shares of stock in the underlying fund that have lots of built-in gains are shoved into ETF shares, which means they don't have to sell them when people redeem shares of the mutual fund classes. tl;dr: basically they just never have to sell shares with built-in capital gains so you rarely see a capital gains distribution when you use Vanguard index funds.