I am researching ETFs and have a confusion with regards to currency associated with them.
An example is iShares MSCI USA Islamic UCITS ETF USD (Dist) (ISUS).
The title has ‘USD’ in it, but freetrade’s eft search page marks it as ‘GBP’.
So how does this work?
Is this a GBP hedged version?
What about the dividends? Will they be in GBP or USD?
Does freetrade apply the exchange rate conversion charge to the initial investment and/or the dividend?
Is there an automatic dividend reinvestment option?
The base currency or denominated currency refer to the currency that an ETF reports in, not necessarily the currencies that the underlying securities trade in. The ETF reports its Net Asset Value in the fund currency and distributes income in that currency too.
So to answer your questions
The dividend is announced in USD and is then converted and paid to you in GBP.
The FX fee is only applied on trades and is NOT applied to dividends.
I suspect that what may be confusing you is that Freetrade shows this ETF with the ticker symbol “£ISUS”. This means that the shares are listed on the London Stock Exchange, and you will buy and sell shares in GBP. The fund is invested only in USA companies and it does all of its internal workings in USD. It is not a currency-hedged fund – if the value of the USD goes down in relation to the GBP, then the price of your shares (which are in GBP) will also go down, and vice versa.
As an aside, Freetrade have done (at least) two non-standard things in their app that were probably done in a belief they were making things easier for people, but which can be confusing because they are not the way most brokers work. One is that they quote UK stocks in pounds rather than in pence. The other is that they prefixed all stock symbols with “£” or “$” symbol to show that they are UK-listed or US-listed stocks, whereas most brokers use an abbreviation of the stock exchange where the stock is listed.
Thank you both.
Just to check my understanding:
. I buy £1000 of shares in this etf - no FX charge/fee as its on LSE in £
. I get a dividend - no FX charge as there is not FX charge/fee on dividends (even though there is a conversion)
. I reinvest the dividend back into this etf - no FX charge/fee as its on LSE in £ and my dividends are in £
Am I correct in all of the above?
Separately, is there any transaction with this etf which will incur the FX charge/fee ?
Isn’t there an accumulating version of the ETF? that would basically do the dividend reinvestment for you
I’m not sure, still new to investing.
I’ve not a seen an accumulating version of it.
I can’t see one on the MSCI web site, Not sure why as most of them have one. Is there something about accumulating ETFs that is not Sharia compliant?
Not accumulation per se - eg the HSBC Islamic Global Equity Index is accumulating.
I think the issue might be that this particular fund does not automatically purify the profits (as its a passive fund?), where as the HSBC one is does.
Yes, correct in all the above.
Freetrade do no not charge commissions so there are no other costs to trade this ETF.
The ETF provider may incur a relatively small cost for buying/selling the stocks in the ETF but I would not worry about these as you won’t “see” them.