NASDAQ ETF's

[MickR]

Hi

looking at investing in a NASDAQ etf, either covering the main market or maybe just the Tech stocks. the investment will be in a SIPP or ISA, but I've heard there are tax implications when investing in certain stocks and trackers. Can anyone throw any light on this or ways to avoid. also recommendations for which etf? I'm not concerned about hedging or currency movements.

thanks

[genou]

Hi

looking at investing in a NASDAQ etf, either covering the main market or maybe just the Tech stocks. the investment will be in a SIPP or ISA, but I've heard there are tax implications when investing in certain stocks and trackers. Can anyone throw any light on this or ways to avoid. also recommendations for which etf? I'm not concerned about hedging or currency movements.

thanks

The key issue is that you want a fund with distributor status that is not subject to withholding taxes on its dividends. Have a look at https://www.morningstar.co.uk/uk/news/6 ... stors.aspx .

Generally this means that you are going to end up with an Irish registered fund, but you still need to check the fund literature. As a random example look here - https://www.ishares.com/uk/individual/e ... ts/253741/ and you will see that it does have distributor status.

[OLTB]

Hi

looking at investing in a NASDAQ etf, either covering the main market or maybe just the Tech stocks. the investment will be in a SIPP or ISA, but I've heard there are tax implications when investing in certain stocks and trackers. Can anyone throw any light on this or ways to avoid. also recommendations for which etf? I'm not concerned about hedging or currency movements.

thanks

Hi MickR

A very experienced and successful investor (sadly no longer with us) recommended the EQQQ ticker to me for a NASDAQ tracking investment.

Cheers, OLTB.

[Lootman]

looking at investing in a NASDAQ etf, either covering the main market or maybe just the Tech stocks. the investment will be in a SIPP or ISA, but I've heard there are tax implications when investing in certain stocks and trackers. Can anyone throw any light on this or ways to avoid. also recommendations for which etf? I'm not concerned about hedging or currency movements.

thanks

The key issue is that you want a fund with distributor status that is not subject to withholding taxes on its dividends. Have a look at https://www.morningstar.co.uk/uk/news/6 ... stors.aspx .

Generally this means that you are going to end up with an Irish registered fund, but you still need to check the fund literature. As a random example look here - https://www.ishares.com/uk/individual/e ... ts/253741/ and you will see that it does have distributor status.

Why would distributor status matter in a non-taxable account? The distributing versus non-distributing issue is a tax issue.

Wouldn't the problem more likely be that a foreign-registered non-distributing fund might not be eligible for an ISA in the first place?

The most well known Nasdaq tracker is "the Q's":

https://www.investopedia.com/ask/answer ... qq-etf.asp

I do not know if it is eligible for a SIPP or ISA.

[genou]

....
Why would distributor status matter in a non-taxable account? The distributing versus non-distributing issue is a tax issue.

Wouldn't the problem more likely be that a foreign-registered non-distributing fund might not be eligible for an ISA in the first place?

The most well known Nasdaq tracker is "the Q's":

https://www.investopedia.com/ask/answer ... qq-etf.asp

I do not know if it is eligible for a SIPP or ISA.

Gah. Must read more carefully. I responded to the question about tax issues without looking at the ISA/SIPP qualification. I can't see why Qs wouldn't be ISA eligible - it's quoted on a recognised exchange, and SIPPs are laxer than ISAs. MickR's broker will no doubt not allow to buy it in either if its not eligible.

[MickR]

thanks guys, looks like you can hold EQQQ in a SIPP and an ISA

https://www.ii.co.uk/etfs/invesco-eqqq- ... atory-news

will have a play thanks again

[Scudsurfer]

I hold IITU and CNDX both have done extremely well.

[MickR]

I hold IITU and CNDX both have done extremely well.

Thanks,. Noticed that CNDX in in dollars and IITU is GBP. Is this a conscious decision to offset currency movements, as there a GBP version of CNDX.

Also, is there much difference between IITU and EQQQ?

[Scudsurfer]

I think IITU smashes EQQQ but IITU is a pure S&P 500 technology tracker where EQQQ is more broader.

I don't prefer £ or $ for ETF's just what the fund is invested in.

[mc2fool]

I hold IITU and CNDX both have done extremely well.

Thanks,. Noticed that CNDX in in dollars and IITU is GBP. Is this a conscious decision to offset currency movements, as there a GBP version of CNDX.

The GBP version of CNDX (iShares NASDAQ 100 ETF), CNX1, doesn't offset any currency movements, it's simply a GBP listing of the same ETF, so that folks who deal in GBP don't have to suffer brokers' foreign exchange charges.

If you have a US$ account with your broker you should buy CNDX and if you only have a GBP account then you should buy CNX1.

Similarly for the iShares S&P 500 Information Technology Sector ETF, which has a USD listing as IUIT and a GBP listing, as you note, as IITU.

[MickR]

I hold IITU and CNDX both have done extremely well.

Thanks,. Noticed that CNDX in in dollars and IITU is GBP. Is this a conscious decision to offset currency movements, as there a GBP version of CNDX.

The GBP version of CNDX (iShares NASDAQ 100 ETF), CNX1, doesn't offset any currency movements, it's simply a GBP listing of the same ETF, so that folks who deal in GBP don't have to suffer brokers' foreign exchange charges.

If you have a US$ account with your broker you should buy CNDX and if you only have a GBP account then you should buy CNX1.

Similarly for the iShares S&P 500 Information Technology Sector ETF, which has a USD listing as IUIT and a GBP listing, as you note, as IITU.

Thanks, I've just moved to Interactive investor, and for some reason, when buying shares in Microsoft, I get a message asking to convert some of the cash in the account to dollars, to cover the purchase. These shares are now shown in USD so I think that with ii, I can purchase in both GBP and USD.

This is the first time I have come across this. I own FB and Adidas shares with HL and both are shown in GBD

Mick

[mc2fool]

Thanks, I've just moved to Interactive investor, and for some reason, when buying shares in Microsoft, I get a message asking to convert some of the cash in the account to dollars, to cover the purchase. These shares are now shown in USD so I think that with ii, I can purchase in both GBP and USD.

Yes, with II you can indeed. II lets you have currency accounts, which is something most brokers don't offer. (Not, however, for ISAs as you're not allowed to hold foreign currencies in an ISA. You can, however, do so in a SIPP.)

So if you have a USD account with them then if you decided to, say, sell Microsoft and buy Twitter with the proceeds, then you could do the whole thing in USD and not suffer any foreign exchange charges.

If, however, you only had a GBP account then (like most brokers) you'd pay a foreign exchange charge when you sold Microsoft (for USD->GBP) and then another (for GBP->USD) when you bought Twitter. For II that's up to 1.5% each way. https://www.ii.co.uk/investing-with-ii/ ... n-exchange

This is the first time I have come across this. I own FB and Adidas shares with HL and both are shown in GBD.

They may show you them in GBP but you paid an up to 1% foreign exchange charge when you bought them. https://www.hl.co.uk/shares/share-deali ... ce#charges

So, if you've got GBP and you want to buy iShares ETFs it's worth buying their GBP classes to avoid foreign exchange charges.

[Cookie]

The FX fee will nearly always make buying the GBP listing much cheaper

The FX on most platforms will normally make holding individual NASDAQ shares quite expensive, so a GBP listed tracker is a good way to get exposure

If you really want to reduce FX costs, then Interactive Brokers (not Investor) is really cheap, but mainly if have more than £70k in account

NASDAQ 100 trackers are more diverse and cheaper than specific sectors like IT, Communication etc

Be aware that 42 percent of the Nasdaq 100 is made up of just five companies - but if you were going buy those 5 companies individually, it maybe cheaper via tracker

I wouldn't worry about currency hedging. You will win/lose when purchasing and buying, but your never going to time it right. The main thing is your assets are held in $, which is the strongest currency in the world and more resilient than the £. You may already have significant exposure to £ through job, mortgage etc that it is worthwhile diversifying

EQQQ is distribution (trading accounts) where as CNX1 is accumulation (ISA and SIPP)

Similar OCF and fund size, 1st and 2nd largest NASDAQ 100 trackers

[MickR]

Thanks for all the info so far. Just looking thruogh and the performance of the leveraged ETF's seem to good to be true. why invest in a straight tracker when you can treble your gains with something like LQQ3? apart form the obvious

Mick R

[mc2fool]

Thanks for all the info so far. Just looking thruogh and the performance of the leveraged ETF's seem to good to be true. why invest in a straight tracker when you can treble your gains with something like LQQ3? apart form the obvious

Be sure you understand how leveraged ETFs work. LQQ3 is a daily leveraged ETF. That means the x3 multiplier is applied daily, not to some reference date or to when you bought. For example (and to use some big gains/losses to illustrate the point)....

Suppose on day 1 your index, and your matching normal ETF, is at 100. On day 2 it goes up 10% to 110, and then on day 3 it goes down 9.1% (10/110) so going back down to 100, where you started.

However, with the 3x daily leveraged ETF on day 2 it'd go up 3x10% to 130, and then on day 3 it go down 3x9.1% = 27.3% -- of 130 -- i.e. by 35.5 down to 94.5.

So, with the normal common or garden ETF you'd (assuming no tracking error) be back where you started, at 100, +/- 0%, whereas with the 3x you'd be down 5.5%, even though the index returned to your starting point.

Here's some reading: https://www.investopedia.com/articles/financial-advisors/082515/why-leveraged-etfs-are-not-longterm-bet.asp

[MickR]

thanks MC

interesting reading feeling like a serious novice at times

so looking at the 1 year chart for LQQ3 on HL, it shows a rise of over 100%

https://www.hl.co.uk/shares/shares-sear ... are-charts

are you saying that if you invested a £1000 last January, it wouldn't be worth £2000 now? Do your returns differ from those shown on these charts?

the Investopedia article suggests its only good for short term investing. However, if you believe the NASDAQ is on a run, then is there any reason not invest and then dip out as soon as the macro economic cycle changes?

Mick

[mc2fool]

so looking at the 1 year chart for LQQ3 on HL, it shows a rise of over 100%

https://www.hl.co.uk/shares/shares-sear ... are-charts

are you saying that if you invested a £1000 last January, it wouldn't be worth £2000 now?

Clearly as it has gone up by over 100% your stake would have more than doubled.

Take the chart you linked to and add the NASDAQ 100 and then look at the opening and closing figures for both and do the maths....

The index went from 6621 to 8990 over the year, a gain of 35.8%. The 3x ETF went from 70385 to 157293, a gain of 123.5%.

So, the 3x ETF went up 3.45 times the index ... just what you'd expect from a 3x ETF, right? If not, then you might consider what else it'd do under different conditions.....

if you believe the NASDAQ is on a run, then is there any reason not invest and then dip out as soon as the macro economic cycle changes?

I'm just pointing out that the leveraged ETFs don't behave as one might tend to think they obviously would. Whatever choices you make from that are up to you.

[Cookie]

If you are adamant on the leveraged ETF, then I suggest trying it with a small amount for a period. That way your not risking the house, but when the advice your given here rings true, you can see for yourself...

Personally, I didn't even need to read the article for it to put me off the leveraging - though I have read about this previously and it was similar advice - the upside is multiplied, but so is the downside. I am happy with the comparatively smooth ride of the NASDAQ 100, but everyone always wants more