In my opinion, an Irish investor is better off having a diversified portfolio of around 20/30 stocks than investing in ETFs.
1. An ETF often gives a false sense of security regarding diversification and risk reduction. For example, the very popular S&P 500 ETF is a market capitalisation weighted index. The top 6 companies (Apple, Microsoft, Alphabet, Facebook, Amazon, Tesla) account for 22.5% of the overall value of the index. It's tech-heavy and not as diversified as people may think. The NASDAQ ETF is even more concentrated with the same top 6 companies accounting for 44% of the overall value of the index!
2. Losses on an ETF cannot be offset against profits on other ETFS/stocks. This compares unfavourably with buying individual stocks.
3. The 8 year deemed ETF disposal and payment of exit tax 41% of ETFs is very harsh . The Irish government must have consulted with disciples of Karl Marx before introducing this regime. No such restrictions exist regarding individual stocks or closed-ended investment trusts.
4. Whereas popular ETFs like the S&P have low annual fees, some of the thematic ETFs can charge fees of up to 1% per annum. Individual stocks can be purchased cheaply these days as there is a lot of competition among online brokers.
It would make far more sense to allow distributing ETFs to follow the same CGT/dividend tax/no exit tax/no 8 year deemed disposal rules as other investments such as shares. I believe that the UK/US and most EU countries tax ETFs in such a manner. As it stands, accumulating ETFs offer a poor deal for Irish investors. How ironic, considering that so many worldwide ETFs are actually Irish-domiciled.
1. An ETF often gives a false sense of security regarding diversification and risk reduction. For example, the very popular S&P 500 ETF is a market capitalisation weighted index. The top 6 companies (Apple, Microsoft, Alphabet, Facebook, Amazon, Tesla) account for 22.5% of the overall value of the index. It's tech-heavy and not as diversified as people may think. The NASDAQ ETF is even more concentrated with the same top 6 companies accounting for 44% of the overall value of the index!
2. Losses on an ETF cannot be offset against profits on other ETFS/stocks. This compares unfavourably with buying individual stocks.
3. The 8 year deemed ETF disposal and payment of exit tax 41% of ETFs is very harsh . The Irish government must have consulted with disciples of Karl Marx before introducing this regime. No such restrictions exist regarding individual stocks or closed-ended investment trusts.
4. Whereas popular ETFs like the S&P have low annual fees, some of the thematic ETFs can charge fees of up to 1% per annum. Individual stocks can be purchased cheaply these days as there is a lot of competition among online brokers.
It would make far more sense to allow distributing ETFs to follow the same CGT/dividend tax/no exit tax/no 8 year deemed disposal rules as other investments such as shares. I believe that the UK/US and most EU countries tax ETFs in such a manner. As it stands, accumulating ETFs offer a poor deal for Irish investors. How ironic, considering that so many worldwide ETFs are actually Irish-domiciled.