DIY Investor Magazine
/
Jan 2017
9
4. Share class: characteristics of the ETF
Towards the end of the ETF name you will usually
abbreviations which provide information on the share
class, such as: db x-trackers S&P 500 UCITS ETF
1C
.
ETFs often issue several share classes, which are
variants of the fund that may differ by fees, trading
currency or income distribution method; you can identify
the variant you want by its unique 12-figure ISIN number,
ensuring that you are investing in the Sterling rather than
Euro version of an ETF, for example. Unfortunately, each
provider uses a bespoke set of abbreviations so there’s
no quick hack for deciphering them.
5. Extra information
Income
Income paid as dividends or interest is either sent
directly to your brokerage account or automatically
reinvested back into the ETF to grow your holdings at a
faster pace. ETFs that pay out are ‘distributing’ - iShares
Core FTSE 100 UCITS ETF
(Dist)
; those that reinvest
are ‘capitalising’ or ‘accumulating’ - iShares FTSE 100
UCITS ETF
(Acc)
. Distributing ETFs are abbreviated as
‘D’, ‘Dis’ or ‘Dist’; accumulating ETFs usually contain one
of either ‘C’ or ‘Acc’
Currency
ETFs that invest in non-UK securities carry
; if the ETF’s name indicates its GBP
hedged then it is protected against currency fluctuations
by the use of forward contracts or options.
E.g. with the db X-trackers S&P 500 UCITS ETF (DR)
2C
(GBP hedged)
, a UK resident will earn the return
of the US index because the hedge cancels out the
effect of the pound’s performance against the dollar. If
a currency is noted but without the term ‘hedged’, then
this is usually a reference to the ETF’s trading currency;
products are often offered in different currencies (GBP,
EUR, USD) on the London Stock Exchange.
Domicile
Some ETF providers like to highlight the fact that their
ETF is based in Ireland, because an Irish domicile can
offer a tax advantage for some investors; e.g. the ‘(IE)’
abbreviation in UBS ETF names.
Replication type
An ETF’s
may be in its name if
a provider wants to emphasise it. This is a particular
feature of db X-tracker products where DR stands for
Direct Replication where the issuer wants to stress
the fact that they offer physical ETFs after years as a
renowned synthetic ETF provider. iShares are reputed
for their physical ETFs already, so they don’t mention
replication in their product names.
Be careful when you see:
Short, 2x, 3x
Leveraged ETFs carry a leveraged, double, 2x or 3x
in their name. These risky ETFs enable investors to
multiply the movements of indices by a factor of two or
three.
ETFs that benefit from declining prices are usually
marked with the term short;
are high risk and specialised investments
that should only be used by very experienced investors
who thoroughly understand their workings.
However, ‘short’ in the name of a bond ETF, means
something altogether less risky - the short maturity
dates of the bonds held in the fund.
Conclusion
ETF names can appear confusing at first glance but
we’ve outlined the most important things to look out
for and you’ll notice that the same sets of terms and
abbreviations keep cropping up.
The best tactic is to use the information contained in the
name to guide you to a shortlist of suitable ETFs and
then dig deeper into their profiles to choose the right
ones for you.
at justETF gives you additional
features to help refine your ETF selection including
index descriptions, filters and comparison tools
and a full profile of each product – you’ll soon be
building your own DIY portfolio of ETFs!
