FX charge for ETFs

Brummfax

Hello everybody,

I‘m new here and hope you can help me with the following problem. I‘m planning to hold some ETFs in an S&S ISA, and by law the currency of the ETF has to be GBP. Of cource the base currency of must ETFs is USD but usually they are priced in different currencies. An example is the SPDR S&P 500 Low Volatility ETF (ISIN IE00B802KR88) which comes as an USD-version (Ticker LOWV) and a GBP-version (Ticker USLV). According to Hargreaves webpage I can hold both in an ISA which is a bit confusing as I can only hold ETFs in GBP. My questions are: Would I have to pay an FX charge if I buy the GBP-version as it is an US-ETF with base currency USD? Can I also buy the USD-version? I guess in this case, the price would be converted to GBP and an FX charge applies. Am I right? What happens if dividends are paid. Does the FX charge apply if I hold a GBP-version of a distributing ETF in my ISA?
Any help is highly appreciated,:beer:

Best wishes,
Brummfax

masonic

ETFs will have one or more trading currencies and a base currency.

In your example, if you bought the version traded in USD (LOWV), then you would pay HL a forex charge every time you bought (to convert your GPB to USD) and sold (to convert the sale proceeds back to GBP). However, if you bought the version traded in GBP, no forex conversion would need to be carried out by the broker, and this would be dealt with by the fund provider likely at a more favourable rate.

If the base currency is USD, that usually means dividends are paid in USD and this will incur a forex charge from your broker to convert these into GBP. This can be avoided by finding an accumulating ETF (the main downside of this when held outside of an ISA or SIPP is you may need to look up and declare the income received by the ETF as you won't have a record of any dividend payments, but you can do this at the same time as looking up excess reportable income, which is needed for non-UK domiciled ETFs whether distributing or accumulating).

So it is usually best to opt for a GBP traded version if available, and accumulating if available, when trading ETFs with a foreign base currency. Though forex charges vary by platform and some may be quite low.

Brummfax

Hello Masonic,

That‘s exactly the information I was looking for.:j Many thanks for your reply!

Best wishes,
Brummfax

londoninvestor

Brummfax wrote: »

I‘m planning to hold some ETFs in an S&S ISA, and by law the currency of the ETF has to be GBP.

Is this actually true? You can't hold cash in your ISA in any currency other than GBP, but you're not in general prevented from holding stocks denominated in a different currency. Nothing to stop you owning Apple shares in your ISA for example.

Is there a different rule for ETFs compared to individual company shares?

But anyway masonic is quite right that if you have the choice of a GBP version of the ETF, that's likely to be the best one to buy.

bowlhead99

londoninvestor wrote: »

Is this actually true? You can't hold cash in your ISA in any currency other than GBP, but you're not in general prevented from holding stocks denominated in a different currency. Nothing to stop you owning Apple shares in your ISA for example.

Is there a different rule for ETFs compared to individual company shares?

You're right in your suspicion that there's no such rule that "by law the currency of the ETF has to be GBP". It can be priced in whatever currency the ETF manager wants to offer.

As with any share or fund you might want to add to an ISA portfolio, if it's not priced in GBP, your broker will have to buy whatever foreign currency is needed using your GBP cash, which will result in a conversion fee, which is why it's typically better to buy the GBP-priced version with your GBP cash so that your broker (Hargreaves in this case) doesn't have to buy dollars to allow the trade to happen, for which he would charge you a fee.

But anyway masonic is quite right that if you have the choice of a GBP version of the ETF, that's likely to be the best one to buy.

Agreed.