ETF follows an index. So it moves with the index (holdings)
Accumulating means ETF doesn’t pay dividends. So the ETF will reinvest it. T212 isn’t responsible. For example if you have an iShares ETF, BlackRock is the one who manages the ETF.
Yes in an accumulating ETF those are used to grow. If you compare the same ETF in a distributing and accumulating version. The accumulating version has a higher stock price.
So just in regards to accumulating dividends (or reinvested dividends), how do you know what amount is being reinvested? By this I mean the amount you would have received if it was a distributing ETF.
If trading 212 do not share the information is there a way of knowing when these get applied to my investment?
There is no effective difference. When you buy an ETF share you are buying it from another investor who wants to sell it, not directly from Vanguard or iShares, for instance. But the share represents a basket of company shares, with a value called a NAV and so investors are not likely to want to sell or buy it for anything much different to the NAV. As iShares explains.
“the market price of the ETF is determined by the value of the fund’s holdings as well as supply and demand in the market place for the ETF. While the share price is largely determined by the underlying value of the portfolio (known as the Net Asset Value or NAV), there may be some differences from time to time especially during times of market volatility.”
The issuer will create and destroy shares as necessary to keep the share price as close as possible to the NAV. If lots of people suddenly have a desire to buy VUSA and so demand starts to cause its price to creep above its NAV then Vanguard will increase the supply by creating and selling more VUSA shares. The fact that people know this will happen means that investors are not likely to want to pay more for the share than its NAV. The NAV is made to track the index by Vanguard making sure that they hold the companies in the right proportions. They daily reveal the exact holdings of the fund so investors can check up.
This information can be found on the issuer’s web site. It is usually in a document that can be found from a link on the ETF’s main page. It is needed for tax reporting. Eg. iShares EMIM, an accumulating ETF. We look at the Literature tab, and then find a document listed called
Download this spreadsheet and find the ETF. This one is on line 68. We read there that the dividend was $0.5264 per share, deemed distributed 31 December, 2019. This is the amount that was reinvested for you. For a UK taxpayer this amount is taxable. As this is USD you have to do the work of converting this to GBP using the exchange rate of 31/12/19.
As you can see, it requires some work. I don’t know of any broker who will do the work for you. The problem is that there are too many ETFs and people have different tax reporting requirements. One way to avoid the hassle is to simply make sure you do not own the ETF on 31/12. Sell it just before and then rebuy, or hold accumulating ETFs in an ISA. Now for further bad news: even for distributing ETFs you still need to do this work - if you are a taxpayer. That is because distributing ETFs, even though they distribute most of the income, there is a small bit that is retained in the fund and which is also considered “excess reportable income” (ERI) and is taxable.
For example, IUSA is a distributing ETF, which makes 4 payments each year. But if also had $0.0008 per share ERI in 2019. (line 80 in the spreadsheet)
Accumulating ETFs deem the dividend to be reinvested at one date each year, although in practice it is happening continuously.
Thanks for all of your input @Richard.W. That is much appreciated.
I am located in Ireland and from my research the best way to invest in ETF’s is to buy into a accumulating ETF as all gains are taxed the same @ 41% on exit which is obviously not that great but not as complex as it could be.
The Irish system is more expensive but easier, since everything is 41%. The UK investor has 20% on capital gains and perhaps 32.5% on dividend income, and the amounts arsing under each heading have to be separately monitored in an accumulating ETF, which can be a substantial accounting headache. I wonder how many people simply get it wrong, but HMRC doesn’t notice.
As I’m not an Accountant (& don’t want to pay one) I would almost rather pay a little more and have piece of mind that I am compliant and have less of a headache.
Having said that, I wonder how many tax departments around the world lose out because honest people declare wrong figures, even when their intentions are good. It’s just that they don’t understand what’s being asked of them!!
For small amounts they don’t care anyway, would cost them more to chase for it than they would get from it. Also, many people get even the basic stuff wrong so I’d presume the majority get that bit wrong.
