by Gregory Krahmer | October 16, 2024
Scan The Investor Information like a professional: Where can you find the important investor information?
You can find this in “The (Simplified) Prospectus” and “The Essential Investor Information”. These documents will be included with each fund you find. In these documents you can find everything related to the fund. If you invest in investment funds and ETFs, you must take into account the costs of two different parties. Below are all the elements you need to pay attention to:
- The Fund Providers
iShares, Vanguard, SPDR, X-Trackers, UBS Barclays, VanEck etc.
- Management fee & ongoing costs
The provider of an investment fund charges costs for the professional management of the fund. These costs consist of a management fee and the operational costs. The amount of the management fee is determined by the fund provider itself and can differ per fund. Operational costs are administration and registration costs, transaction costs, custody fees, legal costs, and other operational costs. The total cost that the fund manager charges for a fund are called the ongoing charges. This is the percentage of the total fund value that goes to the management fee and the operational costs that the fund provider charges for the fund on an ongoing basis.
- Payment of the costs
The costs are deducted by the fund provider from the assets – and thus from the return – of the fund in question and are then included in the price. You do not have to pay for this separately. These costs are stated in The Annual Report, The Prospectus and The Key Investor Information (KIID) of the fund.
- Other costs
Some investment funds charge purchase and sale costs. The investor who buys or sells pays these to the investment fund. The costs are either included in the purchase or sale price or are debited separately from your cash account. Most passive funds do not have an entry or exit fee. For some (active) investment funds, the fund manager also charges a performance fee. This is an additional fee if the investment fund performs exceptionally well. This fee is also deducted from the fund’s assets – and therefore from its return.
- Securities Lending Income
Some index funds or ETFs have additional income that reduces ongoing costs. This involves “Securities Lending”: the ETF lends securities (such as shares or bonds) to a third party who, in return, provides collateral to the fund provider and pays a loan fee. This fee reduces the costs for the fund.
- The Stock Exchange
Finally, there are costs incurred during the ongoing trading of the ETF on the stock exchange. This is the so-called spread. The spread is the difference between the purchase and sale price (bid and ask price) of the ETF in question.
- Investment Policy
What policy does the fund use. This can be a passive or an active strategy. In our case, we are looking for a fund that follows a passive strategy.
“The Fund uses a passive – or index-linked – investment management strategy designed to track the performance of the Index by investing in all or a representative portion of the shares in the Index. Each share is held in approximately the same proportion as in the Index.”
- Currency
In which currency is the fund held. If you choose a currency other than the country in which you live, you are taking a currency risk. Here you can see which “Index” the fund is trying to track. In this case, the MSCI World Index.
“The Fund aims to track the performance of the MSCI World Index. The Index consists of shares of large and mid-sized companies in developed markets. The Fund aims to: “Track the performance of the Index by investing in the same proportion as the Index in all the securities that make up the Index.”
- Distribution Policy – Accumulate/Cumulative or Distribute/Income
Does the fund pay dividends or does the fund automatically reinvest? If you choose ‘Distribute‘, you will periodically receive a certain percentage of cash in your account (Simplified Prospectus). If you choose ‘Accumulate‘, dividends paid out will be reinvested in the fund.
Ongoing costs – All costs that are withdrawn from the fund annually.
– Vanguard US 500 Stock Index Fd Acc(EUR)
– Vanguard Global Stock Index Fund (EUR)
– Xtrackers MSCI World Index UCITS ETF
You can often see from the name of the fund which currency is used (EUR). You can also see whether the dividends are paid out with (Dist/Inc), or whether they are automatically reinvested with (Acc/C).
- Physical vs Synthetic
With a synthetic fund, contracts are concluded between each other and are therefore riskier, because the underlying investments are not actually in your possession. If you want more certainty, go for a physical one.
- Tracking Error
An additional risk is: It is possible that the tracker does not follow the underlying index 1 to 1. As a result, the results may differ (slightly) from each other.
- Dividend Leakage
The country of establishment of an ETF issuing institution influences the extent to which you are able to receive the full dividend. For Dutch investors, the best choice from a tax perspective is to choose an ETF that is issued in the Netherlands, unfortunately this is not always possible.
With foreign ETF providers, you are confronted with dividend leakage. Dividend leakage is that part of the dividend tax that has been withheld from dividends paid out by your investment institution and/or underlying shares in which your investment institution invests and that cannot be reclaimed via your tax return.
Conclusion: