'Acc' funds vs 'Inc funds with dividends reinvested'

george4064

@dark.knight

I'm pretty sure the performance figures assumes that dividend income is re-invested for the Inc fund. If you click on the 'Performance' tab on your links, you'll see underneath the graph that it says the performance is based on bid-to-bid with income reinvested.

bowlhead99

Yes.

Assessing anything other than the 'total return' is meaningless in assessing total performance.


The total return available from the fund is what you get if you allow all dividends to accumulate in an Acc version of the fund. Or, if you immediately re-invest the amount of income that was distributed to you as dividends in the Inc version of the fund.

So the graphs show the return assuming the income had been reinvested. There would be no point doing a performance comparison where in one of the graphs you steadily take money out of the fund and the other you leave it in(or immediately reinvest it). The comparison would be apples to oranges.

redux

I can't see how there can be much difference either way.

The source of the income, the dividends on the company shares held within the fund, is exactly the same.

If there is any bid offer spread on the unit price, this might slightly affect taking the inc unit dividends then buying more units yourself, as they can predict the regular buying needed for the acc units and might do this slightly more cheaply as block transactions.

But I'd be amazed if this makes more than 0.2% a year difference overall.

dark.knight_3

george4064 wrote: »

@dark.knight

I'm pretty sure the performance figures assumes that dividend income is re-invested for the Inc fund. If you click on the 'Performance' tab on your links, you'll see underneath the graph that it says the performance is based on bid-to-bid with income reinvested.

Ah right, yes I was missing something obvious

Thanks

Ada1

I mainly have Acc but having held them for a while I think I would prefer Inc as this would be useful for rebalancing purposes (mainly because I'm lazy... I just leave things run but if I had to consciously reinvest divis I'd reweight)

fonsde

With "Acc" do you end up with more shares? or is that reflected in the price? (pay of dividends)

george4064

fonsde wrote: »

With "Acc" do you end up with more shares? or is that reflected in the price? (pay of dividends)

Its reflected in the price, usually why you see the Acc unit price higher than the Inc unit price.

talexuser

george4064 wrote: »

usually why you see the Acc unit price higher than the Inc unit price.

and that is exactly the compounding effect of the income payments.

If you are unlucky enough to have dealing charges involved with reinvesting income payments, you will always be worse off than using acc units.

TrustyOven

george4064 wrote: »

... the price of the Acc units increasing...

Making it harder and harder to buy the same number of units.

Your increase in price for Acc units....(all else being equal) is driven by how many units you have, not by how much money you spent buying the units.

bowlhead99

TrustyOven wrote: »

Your increase in price for Acc units....(all else being equal) is driven by how many units you have, not by how much money you spent buying the units.

To me, that sounds like a confusing and/or useless statement because the price of an Acc share is not at all driven by how many units you have. The share does not know how many shares you have and the fund manager does not determine the price of an Acc share based on how many Acc shares you personally choose to hold.

The price of an Acc share is simply driven by the total assets owned by the Acc investors divided by the total number of shares held by Acc investors. Similarly, the price of an Inc share is simply the total assets owned by the Inc investors divided by the total number of shares held by Inc investors.

So both share prices are not at all driven by how many shares you choose to hold and they are both equally related to the total number of shares in issue because for both classes, asset value total divided by number of shares equals asset value per share.

The Inc assets per share are always relatively lower than the Acc assets per share, because the assets owned by the Inc shareholders keep reducing every so often because money keeps being paid out of the fund bank account into the investors' own bank accounts, so of course there is less money left in the fund, per share.

To the second part of your statement, the increase in share price is not driven by how much you paid for the shares it is driven by the investment portfolio and market forces.

I guess you could say that in times of rising markets your Inc share price will be closer to what you paid a year ago than your Acc share price is, because the Acc fund turned £100 of assets into £110 of assets and £5 of dividend cash retained in the fund (overall share price £1.15 is 15% higher than purchase price) while Inc fund turned £100 of assets into £110 of assets and gave the dividend cash to its owners (overall share price £1.10 is 10% higher than purchase price). So in those circumstances the Inc share price is closer to what you paid, but you have some money in your back pocket to spend or reinvest.

Whereas in falling markets your Acc share price is closer to what you paid a year ago because in both funds £100 of assets turns into £90 of assets plus £5 of dividend cash, and in the Inc fund the divs are paid out leaving 90p share price and 5p in your pocket while in the Acc fund the divs are not paid out leaving 95p share price.

So whether it is the Acc share price or the Inc share price that's closer to what you originally paid for each share, depends on whether market valuations are going up or down.

So, I don't buy the concept of "share price is more driven by how much money you spent buying the units" as being something useful, as the closeness of price to buy price for each share class depends on market direction.

And I don't buy the concept of "share price is driven by how many units you have" because that's either false (price doesn't care how many units you personally have) or equally applicable to both classes (because price is driven by total assets over total shares).

So, overall I don't see how your explanation of the increase in share price is going to help a newbie, because I have a greater understanding than a newbie and I don't agree with either statement.

Sorry