# Looking for ETF that reinvests Dividends



## patrickjd (7 Oct 2014)

I was keen to buy a Vanguard FTSE all world UCITS etf (
https://www.vanguard.co.uk/uk/portal/loadPDF?docId=1011
) until I noticed it actually distributes dividends. Can anyone point me to a similar ETF that accumulates/reinvests dividends automatically? Any help appreciated.


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## rekhib (11 Oct 2014)

None of Vanguard's ETFs (in the UK or the US) reinvest dividends unfortunately. You could use a couple of Vanguard mutual funds to get that exposure - or you could buy SWDA from iShares (it's an all-world ETF but it tracks Morgan Stanley's index rather than FTSE's). The iShares option is actually cheaper than Vanguard's and it accumulates - hope that helps @patrickjd.


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## patrickjd (21 Oct 2014)

rekhib said:


> None of Vanguard's ETFs (in the UK or the US) reinvest dividends unfortunately. You could use a couple of Vanguard mutual funds to get that exposure - or you could buy SWDA from iShares (it's an all-world ETF but it tracks Morgan Stanley's index rather than FTSE's). The iShares option is actually cheaper than Vanguard's and it accumulates - hope that helps @patrickjd.


Sounds interesting. Thanks!


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## whytis (22 Oct 2014)

For an investor in Ireland, it might be worth noting that most of iShares' funds are Irish-domiciled. That could result in extra taxing on your investment, but I'm only learning myself.


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## He-Man (6 Nov 2014)

My understanding is that accumulating ETFs don't reinvest the dividends for _you_ personally (e.g. by giving you more shares), but rather they just put the dividends back into the fund as a whole. As such, I would expect accumulating ETFs to underperform distributing ETFs.


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## whytis (6 Nov 2014)

@He-Man I have the same understanding. They'll use the dividends to purchase more of the index.

Since the fund then owns more stocks, the value of each unit of the fund should also increase in value. I don't understand it enough to know why that would or wouldn't mean that an accumulating fund would underperform a distributing ETF.


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## He-Man (6 Nov 2014)

whytis said:


> @He-Man I have the same understanding. They'll use the dividends to purchase more of the index.
> 
> Since the fund then owns more stocks, the value of each unit of the fund should also increase in value. I don't understand it enough to know why that would or wouldn't mean that an accumulating fund would underperform a distributing ETF.



I don't see how owning more of the index would have any impact on the price of the share. If the index rises by 5%, the share price will rise by 5% minus the TER. If the index falls by 5%, the share price will fall by 5% minus the TER. 

It doesn't matter whether the fund owns 100m in assets or 1bn in assets - it tracks the index, so its share price rises or falls in lockstep with that. The only other factors are TER and tracking errors, neither of which have anything to do with dividend accumulation. It seems to me the only benefit of an accumulating ETF is a possible reduction in taxation obligations. The Boglehead wiki has  on EU investing.


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## whytis (6 Nov 2014)

Interesting discussion! I'd like to work this out.

From what I understand, an ETF is unit fund.

When you "invest in an ETF", you're purchasing a unit in that fund.

The value of that unit can increase when dividends of the fund are re-invested, since you still own the same percentage of the fund, but the fund itself just got bigger.

However, I think ETFs are open-ended unit funds, meaning that they can "create" more units. That's where I'm not sure at all if I'm on the right track, and it could mess with my assumptions above.


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## Joey101 (18 Nov 2014)

You can find a good list here in excel that has a filter for distributing/non-distributing

deutsche-boerse.com/dbg/dispatch/de/binary/gdb_content_pool/imported_files/public_files/10_downloads/31_trading_member/10_Products_and_Functionalities/40_Xetra_Funds/ETF_ETC_ETN_Master_Data_Sheet.xls


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## landlord (11 Jun 2015)

whytis said:


> Interesting discussion! I'd like to work this out.
> 
> From what I understand, an ETF is unit fund.
> 
> ...



I would be interested to hear if someone has an answer to this question.
If you purchase shares in a accumulating ETF, the underlying stocks distribute dividends which are automatically reinvested back into the fund.  The fund it self tracks an indice and the value of that share rises and falls only with the indice (ignoring TER,tracking error) regardless of any distributions. So what financial benefit is an accumulating ETF over a distributing ETF? Where does the dividend money go? Surely with the exact same tracker fund which was distributing, when you sold up you would get the same gain plus you would have received dividend payments during your investment.
Admittedly it's more of a tax headache to have an distributing fund.

Incidentally Rekhibs suggestion of
*iShares Core MSCI World UCITS ETF EUR (IWDA)*
Seems to be one of the cheapest out there TER 0.2%

*Any other suggestions?*


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## Boyd (11 Jun 2015)

That's actually not a bad deal, and decent diversification with whole world ETF. If you were to use https://www.degiro.ie to buy the above ETF at E2 + .02% (Degiro costs) means you could buy E1000 worth of ETF at E2 + .02% = E2.20, which is 0.22% overall, plus 0.2% TER of the fund, which is 0.42% for the investment, which is much less than 1% - 1.5% quotes by many life companies.

8 year rule is the main fly in the ointment then.


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## Boyd (11 Jun 2015)

Meant to say "iShares MSCI World EUR Hedged UCITS ETF" is another option, but TER is 0.55%. Ticker is IWDE.


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## landlord (11 Jun 2015)

Also these from my research....

iShares Core Japan IMI UCITS (SJPA) 0.2 TER Domiciled in Ireland, currency in dollars,  YTD UP 13.06, NAV $34.19, 52 week range 28.62-35.66

iShares Core Emerging Markets IMI UCITS (EMIM) 0.25 TER Domiciled in Ireland, currency in dollars,  YTD UP 3.06, NAV $24.01, 52 week range ?

iShares FTSE 100 UCITS ETF (Acc) (CSUKX) TER 0.07 Domiciled in Ireland, currency in GBP,  YTD UP 4.77, NAV £91.74, 52 week range 82.18-95.99

iShares MSCI EUROPE UCITS ETF (Acc) TER 0.33 YTD 13.7% NAV 46.87 denominated in euros. 

iShares Core MSCI World UCITS ETF accumulating TER 0.2% YTD 3.53% NAV 43.43 Currency in dollars 

BUT FROM MY PREVIOS POST I WOULD LOVE SOMEONE TO EXPLAIN WHAT AN ACCUMULATING ETF IS. WHAT IS THE FINANCIAL BENIFIT?


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## Sarenco (11 Jun 2015)

landlord said:


> I would be interested to hear if someone has an answer to this question.
> If you purchase shares in a accumulating ETF, the underlying stocks distribute dividends which are automatically reinvested back into the fund.  The fund it self tracks an indice and the value of that share rises and falls only with the indice (ignoring TER,tracking error) regardless of any distributions. So what financial benefit is an accumulating ETF over a distributing ETF? Where does the dividend money go? Surely with the exact same tracker fund which was distributing, when you sold up you would get the same gain plus you would have received dividend payments during your investment.



This can be a bit confusing but I'll give it a shot...

At launch, a fund with accumulating and distributing units will be issued at the same price.  However, the income received by the fund (distributions or interest on the underlying securities in the fund's portfolio) will be reinvested in further securities pro-rata to the NAV of the accumulating units and the balance will be paid out to holders of the distributing units.  Over time, the accumulating units will therefore cost more than the distributing units, simply because the relevant portion of the income received by the fund has been reinvested in more securities that are attributable to the accumulating shares.  In other words, while accumulating units might be more expensive than distributing units at any given point in time, the expected return on both unit classes is identical (ignoring fees and taxes).

The fact that a fund simply tracks an index doesn't change this picture.  An index fund is the same as an actively managed fund in terms of its basic structure - the only difference is that the stock selection is determined by the index provider (FTSE, MCSI, etc) rather than the judgment of the portfolio manager.

So far, so clear (I hope) but things get a bit more complicated when you move on to ETFs.  

Remember that passively managed ETFs are still index funds - the only difference is that an end-investor acquires shares on an exchange rather than by subscribing for shares from the fund company itself.  Like all on-exchange investments this involves broker commissions and bid-offer spreads so if you were to receive dividends and reinvest the proceeds into further ETF shares there would be a certain attritional cost.  With an accumulating share class (often called capitalising shares in the ETF world) an investor will avoid these costs so accumulating ETF shares will generally have higher TERs than distributing shares.

Obviously the above ignores tax, which is a further complicating factor given the different tax treatments of dividends and capital gains in different jurisdiction (not to mention our own odd taxation regime for funds).

Hope that helps.


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## landlord (12 Jun 2015)

Thanks Sarennco....
Is this correct?

2 ETFS. Tracking the same indice......You buy €1000 of each 
A is accumulating and cost €60 per share 
B is distributing an cost €50 per share 

A year later when you sell, the indicie you tracked showed 0 growth. 

A The accumulating fund share price increased by approximately the value of the distributions (after costs...which as you say will be slightly higher).  
B the distributing fund share price stayed the same (or perhaps showed a small drop due to costs), but you did receive some dividend payments over the year.


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## Sarenco (12 Jun 2015)

Yes, that's spot on.  

Ignoring the (relatively marginal) impact of costs and taxes, the return will be basically identical over such a short period - in the case of distributing shares your cash balance will be slightly higher and in the case of accumulating shares your shares will be worth slightly more.  In euro terms, it's basically a wash but don't forget the compounding impact of (reinvested) income over time.


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## landlord (12 Jun 2015)

For an EU Accumulating ETF it can be left alone for at least 8 years, without any tax headaches!!!!
Yes the final result is a 41% tax payment (as opposed to 33%...US ETF or Investment trust), but would this not be partially offset by paying tax on dividends....as for US ETF or Investment trust at a whopping 52% rate (40 income, 8 USC and 4 PRSI).

I feel like I could just invest the whole lump into this with no currency conversion costs too.....
*iShares Core MSCI World UCITS ETF (EUR) (IWDA)*

and re evaluate in 8 years time!! This strategy seems effective for the lump sum investor (as in only one CGT payment in 8 years to consider), who is exposed to the higher rates of tax,PRSI and USC on dividends.
I am going to look in more detail at this fund.


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## landlord (12 Jun 2015)

These are all accumulating EU ETFs on the Amsterdam stock exchange in EUROS, with the correct EURO tickers

ETFs ACCUMULATING.....

iShares Core Japan IMI UCITS (IJPA) 0.2 TER Domiciled in Ireland, currency in EUROS,

iShares Core Emerging Markets IMI UCITS (EMIM) 0.25 TER Domiciled in Ireland, currency in EUROS

iShares FTSE 100 UCITS ETF (Acc) (CUKX) TER 0.07 Domiciled in Ireland, currency in EUR

iShares MSCI EUROPE UCITS ETF (Acc) (IMAE) TER 0.33 YTD 13.7% NAV 46.87 denominated in euros.

iShares Core MSCI World UCITS ETF (EUR) (IWDA) accumulating TER 0.2% YTD 3.53% NAV 43.43 Currency in Euros.


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## landlord (12 Jun 2015)

I have found a fantastic source for accumulating EU ETF trackers on the German stock exchange in euros,  many of which have extremely low TERs
I emailed them to ask how I can locate accumulating ETF's on their website. and got a response back...

you can look up those in our search tool here:
http://www.boerse-frankfurt.de/en/etfs/search
And set the "Use of profits" to accumulating.

I would imagine these would be listed possibly on the Amsterdam and French stock exchanges also , however would the total expense ratio differ from one stock exchange to another? I guess probably not if the denominated currency was the same.


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## Fella (12 Jun 2015)

landlord said:


> I have found a fantastic source for accumulating EU ETF trackers on the German stock exchange in euros,  many of which have extremely low TERs
> I emailed them to ask how I can locate accumulating ETF's on their website. and got a response back...
> 
> you can look up those in our search tool here:
> ...




Why not just buy them from the German stock exchange?


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## landlord (12 Jun 2015)

Fella said:


> Why not just buy them from the German stock exchange?



 If TER is the same on all of the euro stock exchanges then yes absolutely.


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## Fella (12 Jun 2015)

The TER is listed on Ishares website and it shows all the exchanges its listed on , I think its the same regardless of exchange , I don't see why it would be different , are you still going the ETF route despite the tax issues ? I'm moving away from these exact funds your looking at investing in.


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## landlord (12 Jun 2015)

Fella said:


> The TER is listed on Ishares website and it shows all the exchanges its listed on , I think its the same regardless of exchange , I don't see why it would be different , are you still going the ETF route despite the tax issues ? I'm moving away from these exact funds your looking at investing in.



These funds do seem to benefit the lump-sum investor who does not wish to deal with ongoing tax issues,  also those investors who are exposed to high income tax USC and PRSI (52%) on US ETF or share dividend income.
But for the moment I still haven't made up my mind.  I have emailed someone in the AIC  and am waiting for a response on whether their website can filter for acculating investment trusts.
I am also now looking into Berkshire Hathaway ...Warren Buffets company. I will read the thread on here about his company later tonight.


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## Boyd (12 Jun 2015)

Dont forget the lump sum investor into an ETF runs the significant risk of buying into the high market (after current 5 year bull run). You are 100% trying to time the market then.....


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## landlord (12 Jun 2015)

username123 said:


> Dont forget the lump sum investor into an ETF runs the significant risk of buying into the high market (after current 5 year bull run). You are 100% trying to time the market then.....



I do agree with this and understand that dollar (euro) cost averaging probably in the long run is the safest option.  However as I have understood from Rory Gillen's book, trying to time the market becomes less important considering a 10 to 20 year investment.


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## landlord (12 Jun 2015)

Do I have this wrong or is this exactly the same fund, one on the Amsterdam stock exchange and the other on the German stock exchange with different expense ratios?


iShares Core MSCI World UCITS ETF (EUR) (IWDA)
TER on Amsterdam stock exchange is 0.2% (well it actually says ongoing charges is that the same thing?)
http://www.morningstar.co.uk/uk/etf/snapshot/snapshot.aspx?id=0P0000MLIH


*iShares Core MSCI World UCITS ETF*
same fund on German stock exchange. (Although I can't find the ticker code on this German stock exchange website). TER 0.4%
http://www.boerse-frankfurt.de/en/etfs/ishares+core+msci+world+ucits+etf+etf+IE00B4L5Y983


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## landlord (13 Jun 2015)

Sarenco said:


> Yes, that's spot on.
> 
> Ignoring the (relatively marginal) impact of costs and taxes, the return will be basically identical over such a short period - in the case of distributing shares your cash balance will be slightly higher and in the case of accumulating shares your shares will be worth slightly more.  In euro terms, it's basically a wash but don't forget the compounding impact of (reinvested) income over time.


.

These ETF's we have been discussing are open ended and therefore are able to re-invest income. The article below goes some way in explaining why I am having so much difficulty locating accumulating investment trusts. 


http://www.money.co.uk/guides/whats-the-difference-between-income-and-accumulation-funds.htm
*Investment Trusts*
Investment Trusts are slightly different. They are 'closed ended' which means the fund is made up of a finite number of shares whose price isn't directly linked with the fund's overall investment; you can potentially buy overpriced or underpriced shares.
This also has implications for the question of Income vs. Accumulation. With a limited number of shares available, they may not offer the facility to automatically reinvest your profit. As such you will need to proactively buy back into the fund if you're in it for accumulation.

Also this article
[broken link removed]
Treatment of income
Investment Trusts must not retain more than 15% of the total revenue, before expenses, that they generate, meaning that they are required to distribute most, but not all, of their earnings as dividends to their shareholders. The retained earnings can be held in reserve to smooth income distributions in lean years, ensuring a greater cons


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## landlord (13 Jun 2015)

Another fantastic website specifically for ETFs 
If you search for say EURO STOXX 50 it will bring up all the ETFS which track this indicie and give ON THE SAME PAGE the, currency, the fund size, the TER, the yearly % up/down and whether it's accumulating or distributing. Some very usefull info to be all listed on the same page!!!

https://www.justetf.com/en/find-etf...er&sortOrder=asc&groupField=none&tab=overview

I am trying to figure out how you accurately judge tracking error. 
On the web site above, there are 2 ETFs I am interested in. 

1. db x-trackers EURO STOXX 50 UCITS ETF (DR) 1C EUR 1,982 0.09% 11.51% Accumulating  
and
2. iShares Core EURO STOXX 50 UCITS ETF               EUR 960   0.10% 11.72% Accumulating  

The DB-x tracker has a lower TER, however only reflected a 11.51% yearly rise. 
The I shares tracker has a higher TER but showed a better performance for the fund at 11.72%. 
Is this representative of a greater tracking error for the DB-X tracker and reason to select the i shares tracker instead?


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## Sarenco (15 Jun 2015)

landlord said:


> .
> 
> These ETF's we have been discussing are open ended and therefore are able to re-invest income. The article below goes some way in explaining why I am having so much difficulty locating accumulating investment trusts.
> 
> ...



Yes, investment trusts are not funds and therefore conceptually you cannot have an "accumulating IT".  In addition, all ITs (including REITs) are required to distribute the bulk of their income under the applicable UK tax rules.  However, there are plenty of IT's that invest primarily in growth companies that have low dividend rates.


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