Transparency of accumulating ETFs - How do I check? [Netherlands]

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Betelgeuse79
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Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Betelgeuse79 »

Dear all,

I've been investing for about one year using a traditional index fund and a couple of ETFs. I'm investing for the long period, and I chose all accumulating funds.

My understanding of how accumulating funds work is that the dividends paid out by the securities in that fund that pay out dividends are reinvested in the fund. However, I have to admit I have absolutely no idea how to check the amount of dividends that are reinvested in the fund, and how much the value of my quotas/shares changes because of that. I know that the distributing version of my ETFs pay dividends in January and June, but I don't know how to check if, essentially, I have actually benefited from that money in my accumulating fund, when, and in what amount.

I might be missing something here, but in the absence of a transparent and accessible way to see that, I might be tempted to go for a distributing fund (I live in the Netherlands and tax-wise distributing vs accumulating makes no difference) and simply reinvest the dividends that I get in January and June (my broker has extremely low commissions so these extra purchases would not amount to more than a few bucks per year).

I would be extremely grateful if someone could help me understand this issue!
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Re: Transparency of accumulating ETFs - How do I check?

Post by LadyGeek »

This thread is now in the Non-US Investing forum (accumulating funds). I also added the OP's home country to the thread title.
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TedSwippet
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by TedSwippet »

Betelgeuse79 wrote: Mon Apr 12, 2021 7:21 am My understanding of how accumulating funds work is that the dividends paid out by the securities in that fund that pay out dividends are reinvested in the fund. However, I have to admit I have absolutely no idea how to check the amount of dividends that are reinvested in the fund, and how much the value of my quotas/shares changes because of that. I know that the distributing version of my ETFs pay dividends in January and June, but I don't know how to check if, essentially, I have actually benefited from that money in my accumulating fund, when, and in what amount.
The ETF's annual report shows you the complete annual accounting for the fund. For example:

https://www.blackrock.com/uk/individual ... -final.pdf

If you directly compare accumulating and distributing ETFs, you should see the distributing ones suffer a NAV drop equal to the dividend plus/minus market movement on their ex-dividend date, but the accumulating ones will only see market the market movement.
Betelgeuse79 wrote: Mon Apr 12, 2021 7:21 am I might be missing something here, but in the absence of a transparent and accessible way to see that, I might be tempted to go for a distributing fund (I live in the Netherlands and tax-wise distributing vs accumulating makes no difference) and simply reinvest the dividends that I get in January and June (my broker has extremely low commissions so these extra purchases would not amount to more than a few bucks per year).
UCITS regulations require an ETF to be completely financially transparent, and so that's what you see in the annual reports.

Personally, I hold a lot of accumulating funds in my pension and tax-sheltered accounts (but not in my taxable account, because the tax calculations for the UK can quickly become complex there), and they have performed exactly as expected over the past decade or so that I've held them.
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Betelgeuse79
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Betelgeuse79 »

Thanks, although at least for me it's still impossible to quantify how much the value of my ETF shares grows because of that.

Is it really possie that there is no way to determine that? I understand UCITS requires transparency, but this is the third time I ask this question (twice here and once to my broker) and nobody can indicate a way where I can see how much every year I get oit of this accumulation mechanism!
Valuethinker
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Valuethinker »

Betelgeuse79 wrote: Mon Apr 12, 2021 7:21 am

I might be missing something here, but in the absence of a transparent and accessible way to see that, I might be tempted to go for a distributing fund (I live in the Netherlands and tax-wise distributing vs accumulating makes no difference) and simply reinvest the dividends that I get in January and June (my broker has extremely low commissions so these extra purchases would not amount to more than a few bucks per year).

I would be extremely grateful if someone could help me understand this issue!
That would make me buy the distributing funds right there.

In the UK you just don't hold accumulating funds outside of tax protected accounts (basically pensions + ISAs).
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by TedSwippet »

Valuethinker wrote: Mon Apr 12, 2021 11:47 am
Betelgeuse79 wrote: Mon Apr 12, 2021 7:21 am I might be missing something here, but in the absence of a transparent and accessible way to see that, I might be tempted to go for a distributing fund (I live in the Netherlands and tax-wise distributing vs accumulating makes no difference) and simply reinvest the dividends that I get in January and June (my broker has extremely low commissions so these extra purchases would not amount to more than a few bucks per year).

I would be extremely grateful if someone could help me understand this issue!
That would make me buy the distributing funds right there.

In the UK you just don't hold accumulating funds outside of tax protected accounts (basically pensions + ISAs).
I can't see offhand how you came to that conclusion. The topic author is in NL, and stated above that "tax-wise distributing vs accumulating makes no difference". Extrapolating UK tax law onto things may not be useful. For example, NL taxes investment income completely differently to the UK.
Betelgeuse79 wrote: Mon Apr 12, 2021 10:44 am Is it really possie that there is no way to determine that? I understand UCITS requires transparency, but this is the third time I ask this question (twice here and once to my broker) and nobody can indicate a way where I can see how much every year I get oit of this accumulation mechanism!
I agree that it is hard to uncover this information. The best way, if there is an equivalent distributing share class for the accumulating ETF you hold, is to simply compare the change in NAV of these two over the year (or any other period). The accumulating ETF's NAV will gradually outstrip the distributing one over time. In practice, if you look at any pair like this you will (should) see the NAV of the accumulating one is higher than of the distributing one; in general, both would have the same issue price, but one grows faster than the other due to accumulated dividends.

Of course, this only works if there is an equivalent distributing share class for what you hold. Otherwise, you have to rely on the annual reports, or perhaps you can use any information the ETF provides for investors who have to pay tax annually on accumulated dividends (as in the UK and, I think, Germany).

Can you say why you need this information? If it's just a matter of not fully trusting in the ETF provider ... you already trust them to take your money, buy shares, handle all the messy business of receiving and accounting for dividends from each of them, and then give you your money back when you sell, so it's hard to imagine they would then hide some way of siphoning off some of your dividends rather than accumulating them. Or that they could, given their accounting and oversight rules. There are sometimes definite reasons for needing this information (UK tax, say), but you said that NL tax rules made things neutral.

All that said, if you feel happier seeing dividends roll in rather than not, then switch. Your results will probably be just a shade lower due to increased cash drag (an accumulating fund will reinvest continuously as it receives dividends, but with a distributing one you will need to wait until quarter end say until reinvesting) and perhaps slightly higher trading costs. But overall these differences will be small; certainly nowhere near enough to hold something that you don't feel happy with.

Personally I hold both types, in different accounts. And while there is a relaxed feeling of knowing that even if I fall into a coma my pensions will continue to run themselves seamlessly, there is also a bit of a morale-boost from receiving actual cash dividends in my taxable account. All psychological of course, but that doesn't mean it's not also useful.
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by alpine_boglehead »

TedSwippet wrote: Tue Apr 13, 2021 3:43 am Personally I hold both types, in different accounts. And while there is a relaxed feeling of knowing that even if I fall into a coma my pensions will continue to run themselves seamlessly, there is also a bit of a morale-boost from receiving actual cash dividends in my taxable account. All psychological of course, but that doesn't mean it's not also useful.
Same here - it's nice seeing "actual" money falling out of the funds (even if I reinvest it).

As an aside, many funds have separate share classes which are accumulating and distributing. Vanguard especially seems to do this for their Ireland-based funds. It's the same underlying fund, just a different distribution behavior.

I've also seen some funds that over-distribute, i.e. not only distribute the dividends/interest they receive, but also part of their capital stock in order to give the impression of a higher distribution, but I can't quickly find an example. The run-of-the-mill equity/bond ETFs/funds shouldn't do this, though.
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Valuethinker »

TedSwippet wrote: Tue Apr 13, 2021 3:43 am
Valuethinker wrote: Mon Apr 12, 2021 11:47 am
Betelgeuse79 wrote: Mon Apr 12, 2021 7:21 am I might be missing something here, but in the absence of a transparent and accessible way to see that, I might be tempted to go for a distributing fund (I live in the Netherlands and tax-wise distributing vs accumulating makes no difference) and simply reinvest the dividends that I get in January and June (my broker has extremely low commissions so these extra purchases would not amount to more than a few bucks per year).

I would be extremely grateful if someone could help me understand this issue!
That would make me buy the distributing funds right there.

In the UK you just don't hold accumulating funds outside of tax protected accounts (basically pensions + ISAs).
I can't see offhand how you came to that conclusion. The topic author is in NL, and stated above that "tax-wise distributing vs accumulating makes no difference". Extrapolating UK tax law onto things may not be useful. For example, NL taxes investment income completely differently to the UK.
Ted, if I understand the situation:

- the Accumulation Fund cannot give the author the tax information s/he needs without digging, and possibly not at all
- There's no difference between holding Accumulation v Distribution fund units, other than dealing costs, and those the author states are very low

So why, then, hold Accumulation Fund units? Or have I completely misunderstood what is going on? (Quite possible).
Betelgeuse79 wrote: Mon Apr 12, 2021 10:44 am Is it really possie that there is no way to determine that? I understand UCITS requires transparency, but this is the third time I ask this question (twice here and once to my broker) and nobody can indicate a way where I can see how much every year I get oit of this accumulation mechanism!
I agree that it is hard to uncover this information. The best way, if there is an equivalent distributing share class for the accumulating ETF you hold, is to simply compare the change in NAV of these two over the year (or any other period). The accumulating ETF's NAV will gradually outstrip the distributing one over time. In practice, if you look at any pair like this you will (should) see the NAV of the accumulating one is higher than of the distributing one; in general, both would have the same issue price, but one grows faster than the other due to accumulated dividends.

Of course, this only works if there is an equivalent distributing share class for what you hold. Otherwise, you have to rely on the annual reports, or perhaps you can use any information the ETF provides for investors who have to pay tax annually on accumulated dividends (as in the UK and, I think, Germany).

Can you say why you need this information? If it's just a matter of not fully trusting in the ETF provider ... you already trust them to take your money, buy shares, handle all the messy business of receiving and accounting for dividends from each of them, and then give you your money back when you sell, so it's hard to imagine they would then hide some way of siphoning off some of your dividends rather than accumulating them. Or that they could, given their accounting and oversight rules. There are sometimes definite reasons for needing this information (UK tax, say), but you said that NL tax rules made things neutral.

All that said, if you feel happier seeing dividends roll in rather than not, then switch. Your results will probably be just a shade lower due to increased cash drag (an accumulating fund will reinvest continuously as it receives dividends, but with a distributing one you will need to wait until quarter end say until reinvesting) and perhaps slightly higher trading costs. But overall these differences will be small; certainly nowhere near enough to hold something that you don't feel happy with.

Personally I hold both types, in different accounts. And while there is a relaxed feeling of knowing that even if I fall into a coma my pensions will continue to run themselves seamlessly, there is also a bit of a morale-boost from receiving actual cash dividends in my taxable account. All psychological of course, but that doesn't mean it's not also useful.
Ted

As we discuss above, I think for a UK person Accumulating shares outside of a tax free wrapper (pension or ISA) are basically a pain in the neck not worth having? They don't pay you dividends, but you do pay tax on the accrued dividend?

And figuring out your book cost for Capital Gains Tax purposes would be a nightmare as well?

I use them as much as possible inside pensions and ISAs of course, because they avoid the problem of rebalancing due to dividends (or balancing back).
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by TedSwippet »

Valuethinker wrote: Tue Apr 13, 2021 7:58 am ...
- the Accumulation Fund cannot give the author the tax information s/he needs without digging, and possibly not at all
- There's no difference between holding Accumulation v Distribution fund units, other than dealing costs, and those the author states are very low

So why, then, hold Accumulation Fund units? Or have I completely misunderstood what is going on? (Quite possible).
No, you have it right -- just that. It was your second sentence comparing this to the UK situation that jarred.

A UK investor would have real tax and cash-flow motivations for avoiding accumulation units and preferring distributing ones in taxable accounts. For an NL investor though, it looks like it is very much a case of simple preference. The two situations aren't validly comparable, is all. Sorry if I didn't pick up fully on the thrust of your post.
Last edited by TedSwippet on Tue Apr 13, 2021 8:10 am, edited 1 time in total.
Valuethinker
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Valuethinker »

TedSwippet wrote: Tue Apr 13, 2021 8:07 am
Valuethinker wrote: Tue Apr 13, 2021 7:58 am ...
- the Accumulation Fund cannot give the author the tax information s/he needs without digging, and possibly not at all
- There's no difference between holding Accumulation v Distribution fund units, other than dealing costs, and those the author states are very low

So why, then, hold Accumulation Fund units? Or have I completely misunderstood what is going on? (Quite possible).
No, you have it right -- just that. It was your second sentence comparing this to the UK situation that jarred.

A UK investor would have real tax and cash-flow motivations for avoiding accumulation units and preferring distributing ones in taxable accounts. For an NL investor though, it looks like it is very much a case of simple preference. The two situations aren't validly comparable, is all.
OK. We understand each other.

The lack of tax information would make me pause and think again, if I were in the situation of being a Netherlands taxpayer.
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Betelgeuse79
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Re: Transparency of accumulating ETFs - How do I check? [Netherlands]

Post by Betelgeuse79 »

Thanks very much, Ted and everyone else, for taking the time to provide a very helpful answer to my question. Comparing the fund's NAVs between distributing and accumulating makes sense.

As for why I need the information, it's mainly for those psychological reasons you talked about. It would be nice to see those dividends adding up, but it's really just that. I do maintain that if a fund were to be truly transparent, some info to the investors on the amount of dividends they'd be entitled to would be very helpful, but alas it seems they don't provide that.

Maybe I'll try with a new ETF to see how it feels to get thos payments every six month. I've been meaning to sell 20% of my core ETF for an all world value oriented one cause I'm getting the jitters with current valuations, so I can try with that. I know this is kinda market timing, but I also see it as diversification across my equity exposure.
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