Is this a correct definition for VUSA vs VUAG?

isayhello

I have some VUSA shares with IWEB and I notice that the dividends get paid and then IWEB purchase some more shares but I have some stocks where dividends aren't paid but I do see their value increasing e.g. VVLSRU.

I found out that there is an accumulating version of VUSA which is VUAG and wondered if by purchasing this instead would I make the same gains as VUSA as well as saving on any charges from IWEB for purchasing new shares with the dividends, the same as VVLSRU, or are there always charges to pay with purchasing new shares?

The other question I had around the definition of accumulating etf's was whether new shares are purchased or not, I thought they were but came across this post and wondered how does the NAV increase if new shares aren't bought, what happens to the dividends?

"Reinvesting dividends is not quite the same as being invested in an accumulating fund, you will end up with more shares if you reinvest, whereas in an accumulating fund the NAV for each share increases, but not the number of shares you hold"

masonic

You would normally expect that the ETF can get a better forex rate and reinvest more efficiently than a single investor, so it usually makes sense to use an accumulating fund if you don't need the income. The cost of switching (bid-offer spread and trading fees) may make it not worth switching from one to the other. It is also worth comparing assets under management and liquidity, since newly launched ACC ETFs are sometimes more difficult to trade close to the mid-price.

Acc ETFs (physically replicating ones) will be reinvesting income behind the scenes, but this won't involve issuing new ETF shares. Existing shares will instead increase in price.

isayhello

masonic said:

Acc ETFs (physically replicating ones) will be reinvesting income behind the scenes, but this won't involve issuing new ETF shares. Existing shares will instead increase in price.

How does the price increase of existing shares from the reinvested income? I thought the income only allows you to buy more shares.

isayhello

masonic said:

You would normally expect that the ETF can get a better forex rate and reinvest more efficiently than a single investor, so it usually makes sense to use an accumulating fund if you don't need the income. The cost of switching (bid-offer spread and trading fees) may make it not worth switching from one to the other. It is also worth comparing assets under management and liquidity, since newly launched ACC ETFs are sometimes more difficult to trade close to the mid-price.

Apart from the forex, would a platform like IWeb also be charing £5 each time they reinvest the income to buy more shares?

masonic

isayhello said:

masonic said:

Acc ETFs (physically replicating ones) will be reinvesting income behind the scenes, but this won't involve issuing new ETF shares. Existing shares will instead increase in price.

How does the price increase of existing shares from the reinvested income? I thought the income only allows you to buy more shares.

The price of the shares depends on the NAV of the assets held within the ETF. That includes income that isn't distributed, but instead reinvested within the ETF.

When income is paid out it reduces NAV, which is why the share price drops when a distributing ETF goes ex-dividend. Which is why more shares are needed when that dividend is subsequently reinvested.

isayhello said:

masonic said:

You would normally expect that the ETF can get a better forex rate and reinvest more efficiently than a single investor, so it usually makes sense to use an accumulating fund if you don't need the income. The cost of switching (bid-offer spread and trading fees) may make it not worth switching from one to the other. It is also worth comparing assets under management and liquidity, since newly launched ACC ETFs are sometimes more difficult to trade close to the mid-price.

Apart from the forex, would a platform like IWeb also be charing £5 each time they reinvest the income to buy more shares?

Yes, some platforms charge for dividend reinvestment, although often at a reduced rate, but sometimes for free. There is also bid-offer spread.

gravel_2

IWeb: 

• Dividend reinvestment

  Dividend reinvestment purchases are charged at 2% of the dividend value, and capped at a maximum of £5 per stock.