Do (Non UK Stocks) Income/Distributing Funds/ETFs pay dividends in GBP?

[Deleted User]

Given that the fund/ETF is priced in £ on the LSE.

Can they still pay out their dividends in a different currency? :eek:

[Deleted User]

For example an S&P 500 tracker that you buy in £ on the London Stock Exchange, would the dividends paid out to you be in dollars?

I am asking as imagine this would result in more charges from my sipp platform so would prefer if they were paid in £

masonic

ETFs, and other funds will come with up to three currency labels:

Underlying currency: the currency the underlying investments are priced in. For US equities, this will be USD. Some funds will have more than one underlying currency.

Base currency: the currency in which the fund is valued and distributes its income. This is usually the same as the major underlying currency of the fund for efficiency reasons, but can sometimes be different.

Trading currency: the currency in which its shares trade. There may be versions of the fund with different trading currencies.

Several S&P500 ETFs have a base currency of USD and multiple trading currencies including GBP. I'm not aware of any with a different base currency. There exists ETFs that are accumulating and have a GBP trading currency, so you can avoid any forex charges when buying and selling, while avoiding any dividend income being paid out and currency converted.

Forex charges can vary considerably between platforms. It isn't necessarily the case that your SIPP provider would charge more to convert your GBP to USD and vice versa than the fund manager would charge you - a currency conversion must take place at some stage if your money is to be invested in companies or other assets priced in a foreign currency.

[Deleted User]

Aye that makes sense masonic, kind of what I thought, thanks.

There are so many fees, buying fee, selling fee, reinvestment fee, forex fee, platform fee.

bowlhead99

As an example, one of the most popular S&P500 ETFs is Vanguard's VUSA, which you can buy on the London stock exchange priced in pounds. They'll distribute dividends to you in dollars which your broker or investment platform will convert to pounds (assuming you don't have a multicurrency account with your broker).

But if you imagine that the fund only pays a dividend equal to about 1.6% of the fund's value per year (say £1.60 per £100 invested), and your broker charges you a percent to convert the dollars received (1.6p on the £1.60 receipt), we are only talking about less than two pence a year on the £100 invested. So yes, there can be fees all over the place when investing, but the annual cost of processing dollar dividends into your sterling cash account is less than 0.02% of the amount of VUSA investment you hold, and (presumably) the VUSA fund would only be a portion of your overall portfolio.

What you choose to hold, rather than the fx costs to receive the income, will make a lot more difference than 0.02% on some part of your portfolio.

[Deleted User]

I checked and Aj bell seem to charge 0.5% for forex on dividends.

So 0.5% of 1.6% is peanuts but still the charge is annoying.

bowlhead99

newbinvestor wrote: »

I checked and Aj bell seem to charge 0.5% for forex on dividends.

So 0.5% of 1.6% is peanuts but still the charge is annoying.

Less than a percent of a percent is not lifechanging though, and if you allow yourself to be annoyed by such charges you will have a stressful life.

Presumably you are investing in the product because you want the returns from 500 different US assets - being an indirect shareholder of Microsoft, Apple, Exxon etc and would prefer to get exposure to those assets and incomes rather than some other assets and incomes from other companies in GBP or EUR or Yen etc. The fact that you are investing on a collective basis using an ETF means you get exposure to lots of companies at once and most of the costs are covered centrally, which is convenient.

If you have £1000 invested and you receive the natural yield of the index (after central costs of the ETF product) as £16 of dividends a year in quarterly chunks, the amount is variable but is roughly £4 each quarter. If due to fx commissions you get £3.98 each quarter instead, it's still 'roughly £4 each quarter'...

As you can't do much with £4 received from a £1000 investment anyway, you might prefer to use a product that accumulates its income rather than pays it out. There are some accumulating ETFs and lots of accumulating open-ended funds (albeit with their own differing cost exposures).

[Deleted User]

I am aware of accumulating funds although some of the ETFs I like are Income only, there is no acc version.

[Deleted User]

Does anyone hold Scottish Mortgage (Investment Trust ) (Baillie Gifford)?

That appears to be quite a global fund, but are your dividends paid in USD or GBP?

System

newbinvestor wrote: »

Does anyone hold Scottish Mortgage (Investment Trust ) (Baillie Gifford)?

That appears to be quite a global fund, but are your dividends paid in USD or GBP?

It is a UK investment trust and the dividends are paid in GBP. There are many other global investment trusts: F&C, Witan, Alliance, etc. If you buy an investment trust then you pay stamp duty whereas there is no stamp duty with an ETF. A global (accumulating) ETF that is traded in GBP is SWDA: https://www.ishares.com/uk/individual/en/products/251882/ishares-msci-world-ucits-etf-acc-fund
You seem to be obsessing about fees rather than the investment.

[Deleted User]

True, I am obsessive about the fees.
That ETF is traded in GBP but the base currency is USD. It doesn't really matter as it's accumulating though so no dividend payouts = no platform currency charge.

Here's what Fidelity say (which I'm annoyed about as it's too vague/no numbers):
e) If income from an Investment is payable inacurrency other than
sterling, we may ask the issuer or its agent to convert the income
into sterling at such exchange rate as they make available to
us. Alternatively, we may convert the income into sterling at such
exchange rate as we or another Fidelity group company obtain from
a bank or other market counterparty. Any costs or charges imposed
by the relevant third party will be passed on to you.