Distribution currency from ETFs

george4064

I'm helping my Mum re-shuffle her S&S ISA to help produce an income for her. I'm thinking of splitting the portfolio between global equities, WP trusts and bonds.

I'd prefer to aim for a total return strategy and draw income manually from the income and selling, so not interested in high yielding equities.

I have a few questions below please:

1. It seems that all world passive equity funds base currencies are USD, which means that their dividends are paid in USD and therefore incur a FX charge. Have I understood this correctly? I'm thinking of investing in VWRL ETF for example.

2. Same question above but for global corporate bond ETFs. For example; CRPS

3. Vanguard's V3GP ETF base currency is in EUR, does anyone know if these are paid in EUR or in GBP?

4. Any recommendations for the equity and bond components of the portfolio that distribute in a cost efficient manner?

Many thanks in advance.

dales1

I have VWRL.

Halifax convert my dividends to sterling using a clean FX rate, so no fee (beyond the overall annual admin charge).

Jarvis use an FX rate which is higher than the clean rate, so effectively a charge of about 1% on the value of the dividend (so not a big deal).

In both cases, dividend income can be paid away for free.

I don't hold the other two items.

GeoffTF

dales1 said:

Halifax convert my dividends to sterling using a clean FX rate, so no fee (beyond the overall annual admin charge).

I have always assumed that Lloyds/BOS/Halifax/iWeb charges commission when converting dollar dividends to pounds. Do you have a link saying that they do not?

The OP can avoid foreign exchange commission by using the accumulating versions of the ETFs, or OEICs.

gm0

Couple of possibles (Developed Markets Global equities)

VHVG is an Acc unit developed world with USD base currency that you can buy in sterling on LSE.
Acc for dividends without FX.
FX embedded in valuation of the LSE unit.  But no explicit FX to pay on buy/sell

VEVE is the inc unit version.  Also sterling on LSE.  But FX on USD dividends when paid and remitted (such as they are).

ColdIron

If you are aiming at a total return strategy combining dividend distributions and periodic sales you might consider VWRP. It's the accumulating version of VWRL, so tracks the same All World index, where the dividends are retained within the ETF rather than distributed as cash so no currency conversions. Both are priced in GBP so you would only need periodic sales and no external Fx fees. Total return is the same and might make for an easier life

easysaver

GeoffTF said:

dales1 said:

Halifax convert my dividends to sterling using a clean FX rate, so no fee (beyond the overall annual admin charge).

I have always assumed that Lloyds/BOS/Halifax/iWeb charges commission when converting dollar dividends to pounds. Do you have a link saying that they do not?

The OP can avoid foreign exchange commission by using the accumulating versions of the ETFs, or OEICs.

Excuse me for jumping in but I've verified this on my own acount by comparing the dividend distributions for the same ETF on iWeb and a separate broker.
It's implicit in their costs & charges pdf (https://www.iweb-sharedealing.co.uk/assets/costsandcharges.pdf) - my bold:

Foreign currency charges (international trades only)

1.5% of exchange rate

masonic

There are a couple of solutions to this. The accumulating ETF option previously mentioned, or if your platform is security agnostic, then opt for OEICs, which usually distribute in GBP. HSBC FTSE All-World Index Fund C has an OCF of 0.13%, so quite a bit cheaper than VWRL/VWRP, and FWRG from Invesco is also quite a bit cheaper than those Vanguard ETFs.

Some years ago Snowman compiled data from several of us on the FX rates we were getting on USD distributions from Vanguard ETFs. All the platforms of the time had some load on the clean rate, though some did not disclose it. Nowadays platforms are much better at disclosing what it is, if you can be bothered to dig into their fees pages.

dales1

GeoffTF said:

I have always assumed that Lloyds/BOS/Halifax/iWeb charges commission when converting dollar dividends to pounds. Do you have a link saying that they do not?

The OP can avoid foreign exchange commission by using the accumulating versions of the ETFs, or OEICs.

The footnote to each Halifax dividend ticket says this

"The Foreign Exchange rate used to convert your Net Dividend Payable to sterling is an overnight rate from our provider Interactive Data. This rate is a mid-rate, averaged from the latest spot rates quoted by at least 3 approved international financial institutions. The rates are sampled at 4pm on the working day previous to the dividend release."

I can see by comparison with published FX rates, that the Halifax rate is clean and fee-free.

GeoffTF

dales1 said:

GeoffTF said:

I have always assumed that Lloyds/BOS/Halifax/iWeb charges commission when converting dollar dividends to pounds. Do you have a link saying that they do not?

The OP can avoid foreign exchange commission by using the accumulating versions of the ETFs, or OEICs.

The footnote to each Halifax dividend ticket says this

"The Foreign Exchange rate used to convert your Net Dividend Payable to sterling is an overnight rate from our provider Interactive Data. This rate is a mid-rate, averaged from the latest spot rates quoted by at least 3 approved international financial institutions. The rates are sampled at 4pm on the working day previous to the dividend release."

I can see by comparison with published FX rates, that the Halifax rate is clean and fee-free.

That is very interesting. Thank you very much for that. I get the same with iWeb if I select "Dividend History" and click on the value of the dividend (which is an invisible link). The statement quoted is a footnote at the very bottom of the page. I had not noticed that. That is very good. Long may it last!

I have a sizeable holding of VFEM. I had wondered about the accumulating version VFEG. VFEG's spread is not as wide as it was, but it still seems to be significantly wider than that for VFEM. I expect the same is true for the discount/premium to NAV, but I have not checked that. There is certainly no cause for me to incur the cost of switching to VFEG.

george4064

masonic said:

There are a couple of solutions to this. The accumulating ETF option previously mentioned, or if your platform is security agnostic, then opt for OEICs, which usually distribute in GBP. HSBC FTSE All-World Index Fund C has an OCF of 0.13%, so quite a bit cheaper than VWRL/VWRP, and FWRG from Invesco is also quite a bit cheaper than those Vanguard ETFs.

Some years ago Snowman compiled data from several of us on the FX rates we were getting on USD distributions from Vanguard ETFs. All the platforms of the time had some load on the clean rate, though some did not disclose it. Nowadays platforms are much better at disclosing what it is, if you can be bothered to dig into their fees pages.

Thank you @masonic and to everyone else for their responses.

Annoyingly FWRG isn't on HL, I imagine because its only just been recently launched. I might send them a secure message asking them to add it to their platform.

I really don't want to be messing about with dividends being paid in USD and incurring fees, so think I'll go for a GBP denominated investment grade corporate bond fund. It looks diversified enough and the distributions will help reduce how much needs to be sold down on a regular basis.

Just wish it was easier to identify if an ETF pays distributions in the base currency or in the share class currency. It sounds like its most likely the former, but hard to know for definite without investing in said ETF!

I have first hand experience of these FX charges when distributions are paid from USD denominated ETFs (in this case its HMWO ETF). If anyone is interested, AJ Bell apply a 0.5% 'FX charge' to any distributions from that ETF.

GeoffTF

george4064 said:

Annoyingly FWRG isn't on HL, I imagine because its only just been recently launched. I might send them a secure message asking them to add it to their platform.

I really don't want to be messing about with dividends being paid in USD and incurring fees, so think I'll go for a GBP denominated investment grade corporate bond fund.

You will be charged a percentage platform fee if you do that with HL, which may or may not matter, depending on the size of your investment.