Wisdom tree ISEQ 20 ETF relatively new

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A relatively new low cost fund (0.49% TER) has recently opened up on the Irish exchange. The Wisdom tree ISEQ 20 ETF, with dividend payments distributed semi annually.

http://www.ise.ie/Media/News-and-Ev...er-of-ETFs-lists-ISEQ-20®-ETF-on-the-ISE.html

As an inexperienced investor I would consider buying into this fund as part of maybe a 20% portion of a mixed portfolio.

Pros-

No currency conversion costs.

I am concerned that over a 10-20 year period the Euro will strengthen and de-value profits from non Euro denominated fund. A Euro denominated fund like this mitigates the risk.

The fund offers a relatively mixed portfolio of Irish assets.

Total expense ratio TER a reasonable 0.49%

No stamp duty.

Wisdom tree has over $50bn AUM (Assets under management) globally

Cons

Gross roll up rules apply including no loss relief, gains taxed at 41%, deemed disposal after 8 years. Not sure how dividends are taxed under these rules ?

Any other thoughts concerns?
 
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Dividends payments are treated as a chargeable event - the 41% exit tax applies.

While there is no stamp duty payable on the ETF shares, the fund itself will pay stamp duty on acquiring the underlying shares (this is not reflected in the TER).

If you are happy to restrict yourself to Irish shares, you might consider simply buying shares in the underlying 20 publicly traded companies, roughly in proportion to their market cap. You would save yourself the 0.49% TER and would be subject to the usual income tax/CGT regime.

I would point out that you are already very exposed to the fortunes of the Irish economy given your extensive residential property portfolio, which might indicate that a global (or at least a broader Eurozone) portfolio might be more appropriate in your circumstances.
 
Thanks Sarenco......good advice!!
Quite strange that the total expense ratios TERs do not include all costs for example the stamp duty you mentioned!! Although I suppose this would be mainly a cost for the initial outlay of the fund and once up and running it would be fairly infrequent for stocks to fall out of the top 20 and new ones (with the 1% stamp duty) to have to be purchased.
Are there any other costs that the TER doesn't include?

Just out of curiosity, if dividends are paid twice a year for this or another EU based ETF, then I assume dividend withholding tax comes off at source at 20%?
Are you saying then the additional amount which takes it up to your marginal rate of tax is paid after 8 years.....sorry still confused on this.
 
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No, 41% is the current rate of exit tax payable on a taxable event (including receipt of a dividend payment) in respect of an EU-based ETF shareholding - it's not income tax.

There is no withholding on distributions from the (Irish domiciled) ETF itself. Withholdings may apply to distributions from the underlying portfolio shares held by the ETF.

So, you would have to self-account to Revenue in respect of any distribution or gain on transfer and pay exit tax at a rate of 41%. In addition, there is a deemed disposal every eight years where you pay 41% tax on any unrealised gains (as though you had sold the ETF shares).

The tax regime for investment funds (including ETFs) is pretty draconian which is why I am of the view that investment trusts are generally a better option for collective investment in equities outside of a pension fund.

As an aside, I am often surprised at the number of people on here that invest in equities outside of tax-deferred retirement vehicles, given that the fact that the vast majority of people don't even maximise their pension contributions. Each to his own I suppose.
 
Sorry, I missed your query re TERs (sometimes called the ongoing fund charge or OFC).

In a nutshell, the TER captures all service provider fees that are charged to the fund. In addition to the fund's manager, you will also have a depositary, administrator, directors, lawyers and auditors.

The TER essentially excludes all portfolio trading costs including brokerage commissions, bid-offer spreads, stamp duty, etc. Obviously these costs cannot be predicted with any accuracy in advance so are excluded from the TER.
 
The tax regime for investment funds (including ETFs) is pretty draconian which is why I am of the view that investment trusts are generally a better option for collective investment in equities outside of a pension fund.

Can you give some info and/or links about where to read up on investment trusts in Ireland. I've been investigating the ETF route quite alot these days, but don't know much about trusts.


As an aside, I am often surprised at the number of people on here that invest in equities outside of tax-deferred retirement vehicles, given that the
fact that the vast majority of people don't even maximise their pension contributions. Each to his own I suppose.

Few reason for this IMO:
1) I think that people are afraid of the lock-in long (I mean really long) term. With pension products you cannot access the cash until you are at retirement. Granted most investments in ETFs should be circa 20 years anyway, but if you really needed to cash out, you could. With pensions you cant.

2) Most people already have a pension and are happy with what they are contributing, similar to myself. Hence, they/I would like to have another investment option that allowed me to grow excess cash somewhat aggressively outside a simple deposit account and also outside a pension. I would think this is another form of diversification, in that you don't pump all your cash into your pension investments.

3) Since you are locked into the pension, you are at the mercy of government legislation, which may change over time. Who knows, when I reach retirement, maybe the government will be taxing pensions at 60%. I'm obviously using hyperbole here but you never know. People don't like losing this much control - take the pension levy as an example of how the government have no issue plundering our retirement savings.
 
http://am.jpmorgan.co.uk/investment-trusts/explained/what-is-an-investment-trust.aspx

Here's a video from JPMorgan that gives a pretty good explanation how investments trusts work. Also, the industry body (AIC) has a lot of detailed information.

This blog might give you some ideas on how to create a portfolio of ITs depending on whether you are focused on growth or generating an income:

http://www.johnbaronportfolios.co.uk/

Other than the three recently established REITs (which are a particular type of investment trust) there are no Irish investment trusts.

I certainly take the point that pensions are subject to a considerable degree of political risk but isn't everything? Look at the changes to income tax, CGT and the taxation of investment funds over the last decade. I take the view that it is difficult enough to make decisions based on what we know today without trying guess what might happen tomorrow in terms of tax changes, interest rates or stock prices.

I also take the point that people feel they are ceding too much control due to the fact that they can't access their funds for a long time. The Minister broke the seal on this one slightly in a recent budget by allowing access to AVCs and you're right that in general you can't access the funds until retirement.

I suppose what surprises me is that so many people appear to have sufficient savings available to fund their lifestyle and their retirement and invest in shares with their after-tax savings. I must be doing something wrong!
 
RE : INVESTMENT TRUSTS/COMPANYS
Some snippets of my research and also info from Rory Gillen's excellent book ...."3 steps to investment success"
Investment companies, also called investment trusts or closed end funds are listed on the stock exchange. They are relatively low cost and risk controlled. There are now approximately 350 of these on the FTSE.
These are closed end funds meaning, say they initially issue 1000 units and no more. From these a portfolio of stocks are bought. The NAV net asset value of the fund is 1000 x the share price (say 2 Euro) = 2000 Euro. If you buy 1 unit from the stock market and pay 2.2 euro for it, the fund is trading at a premium, however if you pay 1.9 euro it was trading at a discount. If the share price is below its net asset value (I.e. Trading at a discount) one needs to investigate why there is less demand for this share before buying it. Listed FUNDS (ETFs) are generally governed by the financial regulator however listed INVESTMENT COMPANIES such as these are governed by the companies act which gives strong regulatory protection and security even if the fund manager goes bankrupt. They can offer a range of diverse portfolios with no entry and exit costs. I guess the management costs of these ACTIVELY managed funds would be higher than PASSIVELY managed ETFs?
The website WWW.trustnet.com provides information about these investment companies including price and track record etc...

Perhaps someone else could summarise the tax issues associated with these. (Stamp duty, roll over, loss relief, dividends, CGT, etc.......)

Ok just found this on Rory Gillen's website......

  • Investment trusts: are not dealt with in the Revenues guidelines. Our interpretation is that because there is no link between the value of the fund's assets and its share price that they are more akin to shares/securities. In that case, dividends to be taxed at your marginal rate, gains at the CGT rate and loss relief should be available.
 
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Sharenco you mentioned.....
There is no withholding on distributions from the (Irish domiciled) ETF itself. Withholdings may apply to distributions from the underlying portfolio shares held by the ETF.

Sorry the terminology is confusing me....is there a difference between the (distribution) dividends of the underlying portfolio of shares and the fund dividend? If so when is a fund accumulating/capitilizing and when is it distributing?

Also you mentioned...
So, you would have to self-account to Revenue in respect of any distribution or gain on transfer and pay exit tax at a rate of 41%. In addition, there is a deemed disposal every eight years where you pay 41% tax on any unrealised gains (as though you had sold the ETF shares).

For a EU based ETF, Looking at this practically, when a dividend is paid, I guess it will be automatically paid into my online stockbroking account. Is this 41% tax on the dividend paid immediately or at the end of the 8 year period, as in at the end of the 8 years you tally up your gain from the fund with all your dividend payments and pay 41% tax (via a form 11?)

Separate question....
As well as income tax at ones marginal rate, USC and PRSI are also due on the gross? income from share dividends and US domiciled ETFs?

Also are there any accumulating rather than distributing listed UK investment company's ?
 
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The income relating to an accumulating fund unit will be retained by the fund and re-invested in the relevant securities. The underlying securities held by the fund will still make distributions to the fund, whether or not it's an accumulating fund, and these may be subject to withholding tax.

Distributions or gains on disposal of fund shares must be returned to Revenue in your annual tax return. In addition, every 8 years you are deemed to have disposed of your entire holding (even if you haven't) and you pay tax accordingly.

Distributions on EU-based ETF shares are not subject to income tax, USC or PRSI - they are subject to the 41% exit tax. Distributions on US ETF shares are subject to US withholding tax and Irish income tax, USC and PRSI.

The AIC website that I referred you to gives the trailing dividend yield of all investment trusts shares. I'm afraid you will have do some leg work yourself!
 
A relatively new low cost fund (0.49% TER) has recently opened up on the Irish exchange. The Wisdom tree ISEQ 20 ETF, with dividend payments distributed semi annually.

http://www.ise.ie/Media/News-and-Ev...er-of-ETFs-lists-ISEQ-20®-ETF-on-the-ISE.html

As an inexperienced investor I would consider buying into this fund as part of maybe a 20% portion of a mixed portfolio.

Pros-

No currency conversion costs.

I am concerned that over a 10-20 year period the Euro will strengthen and de-value profits from non Euro denominated fund. A Euro denominated fund like this mitigates the risk.

The fund offers a relatively mixed portfolio of Irish assets.

Total expense ratio TER a reasonable 0.49%

No stamp duty.

Wisdom tree has over $50bn AUM (Assets under management) globally

Cons

Gross roll up rules apply including no loss relief, gains taxed at 41%, deemed disposal after 8 years. Not sure how dividends are taxed under these rules ?

Any other thoughts concerns?


biggest negative is that most companies on it are very expensively valued

the DAX is 25% cheaper than the ISEQ right now
 
biggest negative is that most companies on it are very expensively valued

the DAX is 25% cheaper than the ISEQ right now

What exactly does that mean?

Expensively valued ..... as in the share prices of the stocks are trading at a premium? I.e. Above their net asset value
How do you know that the Dax is 25% cheaper. Where does that information come from?

I looked over your post again about vanguard ETF's on the Amsterdam stock exchange and found this.

http://www.etfstrategy.co.uk/vangua...n-nyse-euronext-in-amsterdam-and-paris-48652/

The TERs look good, also the fact that they are denominated in Euro avoids currency exchange fees. Shame about the complex tax issues.
From your earlier comments is the Amsterdam stock exchange over valued, as these ETFs are also available on the French stock exchange.
 
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biggest negative is that most companies on it are very expensively valued

the DAX is 25% cheaper than the ISEQ right now

This is essentially the same as saying that the multitude of market participants in the global equity market have mis-priced both the Irish and German markets. You may of course be proved correct but I don't see how you could possibly say this with any degree of confidence.
 
Sarenco, I have to consult that AIC website glossary of terms every time you write a post!!!! Ha ha
But it's all part of the learning experience!!
 
What exactly does that mean?

Expensively valued ..... as in the share prices of the stocks are trading at a premium? I.e. Above their net asset value
How do you know that the Dax is 25% cheaper. Where does that information come from?

I looked over your post again about vanguard ETF's on the Amsterdam stock exchange and found this.

http://www.etfstrategy.co.uk/vangua...n-nyse-euronext-in-amsterdam-and-paris-48652/

The TERs look good, also the fact that they are denominated in Euro avoids currency exchange fees. Shame about the complex tax issues.

From your earlier comments is the Amsterdam stock exchange over valued, as these ETFs are also available on the French stock exchange.

The stock exchange where an ETF is listed has no bearing on the NAV of the ETF. The exchange is simply the place where the securities are traded - most European ETFs are listed on multiple exchanges but trade at essentially the same price regardless.
 
The stock exchange where an ETF is listed has no bearing on the NAV of the ETF. The exchange is simply the place where the securities are traded - most European ETFs are listed on multiple exchanges but trade at essentially the same price regardless.

I understand that, but would galway_blow_in have meant that THE INDIVIDUAL stocks within this fund would be overvalued, (I.e. If you bought any of them outside of the fund it would be trading at a premium) therefore this fund in its entirety would be overvalued compared to for example a vanguard world ETF fund?
 
Sarenco, I have to consult that AIC website glossary of terms every time you write a post!!!! Ha ha
But it's all part of the learning experience!!

Ha! Sorry, I know the jargon is pretty intimidating at first. You should probably make sure you have a good grasp on how different fund structures work before you get into the details of ETFs, tax, etc.

I understand that, but would galway_blow_in have meant that THE INDIVIDUAL stocks within this fund would be overvalued, (I.e. If you bought any of them outside of the fund it would be trading at a premium) therefore this fund in its entirety would be overvalued compared to for example a vanguard world ETF fund?

Fair enough but that is really just saying that the market price (the aggregate value judgment of all buyers and sellers in the market) of the underlying securities is wrong. Maybe it is but without knowing something that the rest of the market doesn't know, I don't see how this could be stated with any degree of confidence. Don't forget that all available public information is already reflected in the price of the underlying securities.
 
What exactly does that mean?

Expensively valued ..... as in the share prices of the stocks are trading at a premium? I.e. Above their net asset value
How do you know that the Dax is 25% cheaper. Where does that information come from?

I looked over your post again about vanguard ETF's on the Amsterdam stock exchange and found this.

http://www.etfstrategy.co.uk/vangua...n-nyse-euronext-in-amsterdam-and-paris-48652/

The TERs look good, also the fact that they are denominated in Euro avoids currency exchange fees. Shame about the complex tax issues.
From your earlier comments is the Amsterdam stock exchange over valued, as these ETFs are also available on the French stock exchange.


you refer to a number of different issues there but im only going to address the topic of the thread , let me provide you with two different links , one details the ( dollar denominated ) ishares etf which covers Germany,s DAX , see the PE of the fund ( its 16 )

the other covers the irish market and the PE is 19 , this fund is very similar to the new one launched by wisdom tree

http://finance.yahoo.com/q?s=EWG&ql=1

http://finance.yahoo.com/q?s=EIRL&ql=0

the difference in valuation is just shy of 19%
 
This is essentially the same as saying that the multitude of market participants in the global equity market have mis-priced both the Irish and German markets. You may of course be proved correct but I don't see how you could possibly say this with any degree of confidence.

are you saying the valuation of a market is always on the money ? , even it is , as someone who tries to find value if I can , id be more comfortable today buying the DAX than the ISEQ , id be more comfortable buying the DAX than the S+P today as well by the way as the S+P has a PE of 19 and the strengthening dollar is likely to hit American corporations earnings to some degree
 
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