GraniteShares has expanded its product range of exchange-traded products (ETPs) with the launch of World’s first FAANG, GAFAM & FATANG ETPs.
The company completes its line-up of cutting-edge investment solutions with the launch of twelve new ETPs, coming with leveraged factors of -3x,-1x,1x,3x. The ETPs will provide exposure to highly traded tech-enabled portfolios of companies through Solactive Indices that track:
FAANG (Facebook, Amazon, Apple, Netflix and Alphabet)
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What is a “normal ETF”? The “normal ETF” could have 1 of 2 distribution policies.
It’s always better to understand how a product works in their documentation, it’s a good-practices routine, doing a proper due-diligence. For example:
For the FAANGs ETPs (and all other GraniteShares ETPs), the dividends are reinvested.
As you may know, when a stock deliver dividends, the amount of the dividend is deducted from the share price. Supposing that a stock is worth $10 and its price does not move overnight. If there is a dividend payment of $1, then the share price will be $9 next day.
When dividends are reinvested, this mean that you will not get $1 but the price will stay at $10.
If market moves up by $1, share price will be $9 > $10… “reinvested share price” will be $10 > $11
In a simple sentence, dividends will increase the performance of the ETPs.
I don’t think when dividends are paid, it is deducted from the stock price.
This concept is applicable for mutual funds where in they sell the stocks to declare dividends.
For ETF’s could you elaborate on Dividends please.
Thank you.
the deduction is a general market trend, where the value of a company including its cash holdings are shared across all shares in the market. the dividend is paid on a per share basis out of these funds effectively reducing the company value per share, by the same amount as the dividend paid.
we just don’t see it directly like this as market sentiment determines the price and can adjust it back up, or much further down. reinvesting the dividend lets them increase the shares that back the ETP effectively maintaining its price and stabilising the performance.
If I am not mistaking, with ETFs dividend can be reinvested (as I explained) or paid in cash.
Extract from investopedia:
Dividends Paid in Cash
The SPDR S&P 500 ETF pays out dividends in cash. According to the fund’s prospectus, the SPDR S&P 500 ETF puts all dividends it receives from its underlying stock holdings into a non-interest-bearing account until it comes time to make a payout.2At the end of the fiscal quarter, when dividends are due to be paid, the SPDR S&P 500 ETF pulls the dividends from the non-interest-bearing account and distributes them proportionally to the investors.
Some other ETFs may temporarily reinvest the dividends from the underlying stocks into the holdings of the fund until it comes time to make a cash dividend payment. Naturally, this creates a small amount of leverage in the fund, which can slightly improve its performance during bull markets and slightly harm its performance during bear markets.
Dividends Reinvested
ETF managers also may have the option of reinvesting their investors’ dividends into the ETF rather than distributing them as cash. The payout to the shareholders can also be accomplished through reinvestment in the ETF’s underlying index on their behalf. Essentially it comes out to the same: If an ETF shareholder receives a 2% dividend reinvestment from an ETF, he may turn and sell those shares if he’d rather have the cash.
Sometimes these reinvestments can be seen as a benefit, as it does not cost the investor a trade fee to purchase the additional shares through the dividend reinvestment. However, each shareholder’s annual dividends are taxable in the year they are received, even if they are received via dividend reinvestment.
