Accumulating Versus Distributing

Why is it that some of the ETFs are accumulating and others are distributing? Why can’t we have both for each ETF? Or, at the very least, they could all be the same.

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Some people like to receive dividends. Demand and supply.

Ideally there would be both if both are available. Right now Freetrade have limitations on how many products they can offer. And I suspect that the bias towards dist ETFs is due to the fact that they launched without ISAs, and a dist ETF is a lot easier to deal with for tax purposes.

Could you expand on that please? I’m not sure I’m getting the reasoning.

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If you need to report your dividends, it’s easier to look at your transaction list of dividends paid into your account to see everything nicely packaged up with dates and amounts.

If you have an acc fund, the dividend reinvestment happens behind the curtains, T the fund level, you never see it yourself, so it’s a pain to go digging for the information to report it.

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Unlike Unit Trusts and OEICs most ETFs don’t have acc versions. I suspect the main reason is that they were initially mainly used as institutional Investments. However, there are ETFs for non-income producing assets such as Gold so aren’t really Acc or Inc.

Personally, I am glad they are mainly only inc, as many ETFs are not UK domiciled so getting the income data would be a right royal pain. Some non-dom OEICs report their income after the HMRC deadline so it’s not possible to correctly report them on Tax Return. Plus the whole nightmare of reregistered and converted units.

I don’t think all ETFs have both options, am I wrong?

The best solution in my view is making everything distributing by default then being able to turn on reinvestment, regardless of fund type or if it is a dividend paying stock. Should it be the other way around?

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Not all are available as both, but the best solution would surely be to offer both wherever both are available. Just let people choose for themselves.

As covered already, dist are great in taxable accounts, but acc are better in ISAs for people who don’t need the income.

Even if an automatic reinvestment feature was turned on, acc would be better than dist because there would be less time that your dividend money was out of the market. If fractional buys of etfs isn’t possible, your dividend money could be sitting around for a long time until you have enough for a whole share. Even with fractional buys, there’s a multi day delay in receiving the dividends.

To have both it would mean two separate listed stocks. Which is a lot more trouble than a UT/OEIC having more than one subfund because the latter aren’t listed.

What do you mean limitations on the number of products? Is there a set number of products or is it just that adding a new product is costly?

It seems that adding new ones is costly. I don’t know the details, but apparently their upcoming new first party platform system will make it less so.

No limit, but yes I would have thought it was quite a bit more costly. Some smaller fund groups even outsource some of the stuff (eg with prefix CF or TB) so several fund groups have their subfunds covered by single entity.

That’s all said ETFs are supposed to reduce cost but presumably that only works with scale.