NotSure wrote:mc2fool wrote:Common sense would say yes, but then that means that the ETF must drift away from the index (upwards) until the next ex-div date, 'cos the index doesn't include dividends, let alone cumulated ones ... but, I've never heard of ETFs' tracking error increasing up to the ex-div date so ... hmmm, dunno...
If you hold an accumulating tracker that doesn't beat the dividend paying version, then swap it quick!
Indexes don't have ex-dvi dates, and dividend paying ETFs are smoothed by the fact they hold dozens to thousands of shares.
1st sentence: indeed, but I wasn't talking about
acc vs
inc ETFs (which is an additional complication) but
inc ETFs vs their index.
2nd sentence: indeed indices don't have ex-dvi dates but it's the
index that is "smoothed" by the fact that it holds lots of shares. ETFs OTOH do have ex-div dates, and Monabri's 2nd link confirms what I'd never thought of, that an
inc ETF's tracking error must increase up to its ex-div date and be "reset" on it.
"
Dividends affect the ETF’s net value. The ETF’s net value/NAV increases when the underlying companies distribute dividends to the ETF. The ETF’s net value/NAV decreases when the ETF distributes dividends to its investors."
Now, the
acc complication is that, firstly to answer the OP, yes, the
acc units value increases incrementally as it gets dividends from its constituent shares, but as the expectation is that
acc and
inc units should have the same total return, that implies that the ETF must cumulate dividends received in both cases and reinvest them for the
acc units on the same day as it pays them out (or goes ex-dividend maybe) for the
inc units.
As such that means that neither
acc nor
inc units will have the same total return as the index, as they both reinvest/payout on different dates to the index. At least under FTSE methodology.