VEVE dividend

granta

Hello

I know many on this area of the forum hold VEVE etf so am hoping someone can quickly explain something that is puzzling me.

I have just been paid the dividend today - in my ISA in £ sterling, and in my SIPP in $ US (and then converted into £). Why the difference in currency?

EthicsGradient

ISAs are not allowed to hold foreign currency, so any dividend or distribution paid in one (like this) must be automatically converted by the manager. If your non-ISA platform can handle foreign currency, then it'll be in that (are you saying "then converted" was done by you, or by the platform without a decision by you?)

granta

Thanks @EthicsGradient Both my SIPP and ISA are with the same platform so I was confused why they appeared different on the transaction statement. Re: conversion - yes, it looks like the platform did the conversion but I can't work it out as on the cash statement in my SIPP, it is still showing in $. If I wat to reinvest the dividend, do I have to convert it myself or can I just go ahead and buy more VEVE.
It's the first time I've held VEVE hence my ignorance. Only had HMWO before which got automatically reinvested I think and was in £.

masonic

You might consider holding the USD version, VDEV, in your SIPP. Or you could buy the GBP accumulating version VHVG.

HMWO also is priced in GBP and distributes in USD, so is of the same currency class as VEVE.

It makes sense to receive a distribution in the base currency of the ETF and then choose if and when to convert it. You would need to do so if reinvesting in an ETF with GBP trading currency.

gm0

This is something I am curious about too.  How problematic are dividend FX costs vs other factors in holding similar assets.

Is it material better/worse/same to risk or cost to hold VHVG over VEVE long term. Or the fund versions. 

I don't think you can hold USD cash in Fidelity International (UK) anyway ? (USD accounts do exist domiciled in the UK e.g. Citigroup multi-currency but it's fairly niche and would not help anyway if the platform don't process USD in transit.

So looking on Fidelity International as a UK customer at VEVE and similar lego blocks

VDEV mentioned above doesn't seem to be an option in investment finder on that platform. Or if you search for the LSE VDEV ISIN it takes you to the VEVE page. Not available it seems

Other developed World ETFs and related alternatives

VEVE (0.12%)
VHVG (0.12%)
Broadening to include EM all world VWRL @ 0.22% - seems poor value - just pick your own EM fund for a slice
All of those are capped to "£45" aggregate platform fee for holding ETFs on fidelity

Or with Vanguard Dev World and similar funds. 

Fidelity platform fee now 0.20% >500k or 0.35%<500k Max 2000 @£1m.

Funds

VNDEI ESG Dev World Inc units (0.20%)

VADEI VADEA (ex UK versions for blend your own home market bias) with a UK fund - 0.14%
VAFTI (World option) - 0.23%
VANEI (VLS100 inc or the acc version) @ 0.22%

So - on fidelity - the FX on VEVE USD dividends would need to be quite punitive to offset the ETF/Fund platform drag.

e.g. For 150k of VEVE = £180+£45 pa. Same costs for VHVG.  

So any difference (if there is one) will be in the FX handling showing up in the dividends being lower as received GBP net the charges vs if the same USD dividend stream was reinvested into the acc unit prices subsequently realised by selling GBP units at rebalancing.

Fund VNDEI would be £300+£300 for similar assets -

Funds are worse by £375 pa less any FX charge "losses" on inc units which applies to VEVE (and any other inc unit fund I would guess)

Do the mechanics of dividend and FX charges generate a superior outcome net fees over the lifecycle in deaccumulation.  A stock of units. Dividends arise inside the holding.  FX happens or doesn't for acc and inc -  Unit prices rollup. 
Sale of GBP listed ETF units occurs to cash buffer.  Income taken.

Simplest example is VHVG vs VEVE for total GBP return

If it is as simple as saying the FX charges hurt you on VEVE and don't on VHVG then that would be the superior "money saving" choice to hold. Pretty much everything else is the same. 

masonic

There are two questions to ask... Will you reinvest any income back into the same ETF? Are you holding the ETF in a tax-free wrapper (SIPP or ISA)?

If yes to both questions, then VHVG will be simpler and more efficient to hold. If no to either question, then there is a good case for VEVE.

Alexland

I've held VEVE as the only holding in my £45 capped Fidelity SIPP for years and it's got better liquidity / spread than VHVG which I think Fidelity have only recently added.
Fidelity once told me via secure message that they have arranged to receive the dividend in GBP so don't apply their own FX conversion charges so their only charge to me is the £1.50 auto reinvest.
I find any leftover dividend, after buying whole units, useful to replenish the cash balance to cover ongoing fees as it's an otherwise dormant account with new pension contributions going into my sal sac workplace scheme.
The latest quarterly VEVE dividend was very healthy and reassuring given the recent market valuation dips. It's nice to see dividends buying higher quantities at slightly lower unit prices.

gm0

Thanks @masonic - A bit more digging suggests we are on the edge of the costs optimisation noise floor in any event

My scenario is SIPP deaccumulation. So tax reporting for dividend and cgt is not a concern.

If I have understood now correctly then VEVE held at fidelity international will generate circa ~2% dividends generated from international assets of which 60%+ are USD and this dividend flow is subject to the Fidelity flagging on reinvestment (switched off for me) and also is subject to FX fees charged by Fidelity to drop out the income as pension wrapped cash but in GBP. No foreign currency cash accounts are offered by them so there is no "hold" USD option.

Fidelity FX fees seem to be the order of 1% for small amounts (if the "up to X fee structure for FX described for trading applies to dividends tbh the site is not very clear about FX treatment of dividends. 

Anyway if those two numbers are ballpark correct then 2% of a "£100k" notional holding is £2000/$2600 roughly.  And 1% levy on conversion of that is £20

So for a small premium each year - I can if I choose - smooth out the FX events (the dividends happen quarterly) and top up deaccumulation cash buffer along the way in GBP to the tune of of the 2% or so income stream. 

No reinvestment is happening so no trade costs for small amounts with inc units there. 

Overall costs are £45 platform fee (etfs) overall and the 0.12% fund fee.  
And the ETF trade cost at rebalancing £10
Any inside the fund unit price incidental + trading costs,
And this broker FX cost. 
The only element which *appears* to differ for VHVG and VEVE is the dividend FX charge.

£20 or so "losses" per 100k held vs using acc units are the premium paid for that cashflow design based on inc.

Although there is strictly no FX event when the LSE GBP traded acc or inc ETF units are sold to cash at rebalancing and income setup. The GBP listings are subject to GBP/USD positioning more generally so I guess you are exposed to FX at rebalancing.

Unit sales for income will clearly be a lesser quantity in the inc (VEVE) case viewed by value of trade (making up the difference not the whole amount from 2% to WR x N months to refill). But the VHVG acc units would have had the income stream embedded into their prices so that offsets in terms of unit numbers deaccumulated - which would be lower by the same amount.

Leaving only the FX charge difference for convenience or cost optimisation.

granta

Just a follow up question to my original post - in light of recent currency movements - about dividend payments:
Is it better to have dividend payments in dollars, i.e. VEVE rather than VHVG?
I realise this could change over time but currently does it make any difference?

masonic

Receiving the dividend in GBP means the fund takes care of the currency conversion rather than your broker. This likely results in a smaller forex cost.

If you reinvest the dividend, the Acc version of the ETF may be preferable, but this is smaller and less liquid.

In a SIPP, receiving and keeping in USD is an option - an attractive one at present.