Sounds interesting. Thanks!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.
@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.
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.
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.
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 is very from one stock exchange to another? I guess probably not if the denominated currency was the same.
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