Cracking the Code: Decoding ETF Names & Discovering Tools To Find Them
The Definitive Guide to Slashing ETF Costs and Taxes - PART 2
This article is Part 2 of our Definitive Guide to Slashing ETF Costs and Taxes.
In Europe and the UK, selecting an ETF means choosing between multiple currencies, different ETF domiciles, impacting the tax rate on dividends paid to the US Government, or different Stock Exchanges.
But it’s also never been easier to buy ETFs. ETF Names can be confusing, but once you crack their code, you can avoid life-long fees charged by Robo and Human Advisors. It will make you substantially wealthier. Today, let’s crack the ETF code.
KEY TAKEAWAYS
- ETF names include the asset manager and the benchmark the fund is tracking.
- The name may include how it tracks the index. Physically, by buying the same basket of stocks or by offloading the responsibility to a Bank through derivative contracts.
- ETFs regulated in Europe are called ‘UCITS ETFs’. When an ETF doesn’t have UCITS in its name, it’s likely American, and you may not have access to it.
- Each ETF may have multiple share classes. It will specify whether it distributes dividends to investors or reinvests them in the same securities. A share class may also indicate whether currency risk is hedged. Each share class is identified by an ISIN.
- You can buy the same ETF share class on different Stock Exchanges, e.g. in London, Paris or Milan. Each Exchange assigns a ticker to a specific ETF share class.
- Tools to locate the suitable ETF, Share Class and Exchange include Trackinsight.com, Justetf.com or Morningstar.com.
Here is the full analysis
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Cracking the Name In 6 STEPS
Let’s have a look at a popular ETF, the Vanguard FTSE All-World UCITS ETF and try to crack its code:
- What are the clues about cost and taxes in its name?
- What matters from the perspective of risks you will be taking?
- Where else are hidden clues about further savings we can make?
1. ETF Asset Manager
Vanguard FTSE All-World UCITS ETF (USD) Accumulating
Vanguard FTSE All-World is managed by Vanguard Global Advisors. The Firm is the second-largest ETF Asset Manager in the World, and the 4th in Europe.
Why it Matters?
When choosing an ETF, having a provider that will be around tomorrow is key. Size doesn’t mean everything, but being amongst the top issuers brings costs down and makes the ETF business financially sustainable in the long run. The other aspect is the breadth of the products. Some ETF providers have more products, but their Fund sizes may be smaller.
Largest UCITS ETF Issuers
| # | Asset Manager | Size in €bn | Market Share | # of ETFs |
|---|---|---|---|---|
| 1 | BlackRock (iShares) | 576 | 46% | 15% |
| 2 | Amundi (incl. Lyxor) | 194 | 16% | 17% |
| 3 | DWS (Xtrackers) | 132 | 11% | 8% |
| 4 | Vanguard | 80 | 6% | 1% |
| 5 | UBS | 78 | 6% | 5% |
| 6 | Invesco | 60 | 5% | 5% |
| 7 | State Street (SPDR) | 54 | 4% | 4% |
| 8 | WisdomTree | 22 | 2% | 10% |
| 9+ | Others | 53 | 4% | 34% |
Not Only American Firms
BlackRock’s iShares dominates the European Market with a market share of c. 46%. Vanguard despite its small size in Europe is still a great option. It does offer the cheapest and most diversified funds. But two European managers have a stronger footprint:
- Amundi, including the merged Lyxor ETFs ranks #2 in terms of amount of managed money and has the largest number of products (17% of all ETFs in Europe).
- DWS known for its Xtrackers ETFs, ranks #3 and has a more concentrated offering (8% of ETFs)
2. Benchmark
Vanguard FTSE All-World UCITS ETF (USD) Accumulating
Vanguard FTSE All-World Tracks the FTSE All-World Benchmark. The firm that created the Index is FTSE Russell. You can find details about the underlying holdings on the Index Provider’s website.
Why it matters?
After asset allocation, choosing an Index is the most important decision you will make. An Index defines the underlying investments and their weight. Some Indices like MSCI ACWI or the FTSE All-World cover the entire World. Do you want to spread your wealth widely across all Equities or capture unique market segments? You can invest across the entire world with one ETF or tilt your portfolio:
- Towards regions such as the Emerging Markets, or even drill down into individual countries
- Focus on specific industries, a specific equity strategy or specific investment themes
Country allocation in FTSE All-World Index
3. Regulator
Vanguard FTSE All-World UCITS ETF (USD) Accumulating
The ETF is regulated by the European Union through the Undertakings for the Collective Investment in Transferable Securities (“UCITS”).
Why it matters?
By investing in ETFs regulated by the EU, you get a number of protections. As we will see in this guide, you also get favourable tax treatments for dividends given that the Funds are domiciled in Europe. If you can’t find the UCITS in the name, it likely means it’s regulated in the US. In that case, be careful with the tax implications.
4. CurrencIES
Vanguard FTSE All-World UCITS ETF (USD) Accumulating
The Fund Base Currency is the U.S. Dollar. Apart from saving you some FX conversion fee when you invest in dividend distributing ETFs, this currency type is largely irrelevant. That’s because, unlike main ETF currency types that we will describe in this guide, you have no influence over the Base Currency. As most of the ETF stocks are in the US, the base currency will always be the USD.
So, the only important currency to pay attention to in the ETF description is whether the ETF is currency hedged. The Currency Risk Hedging is not mentioned in the share class description, otherwise you’d see “Hedged”. The Fund is thus Unhedged.
Why it matters?
ETF currencies may seem confusing at first. There are a few currency types, that we will cover in this guide. But only two typically show up in the ETF name:
- The Hedging Currency – In the illustrative Vanguard ETF, most Stocks are denominated in USD. If you hedge, you can remove the asset currency risk. It’s your choice.
- The Fund base currency – If it’s in your currency, it allows reducing FX conversion fees for dividends you receive. But you have no influence over it, and it has marginal importance.
5. Share Class - Dividend Distribution
Vanguard FTSE All-World UCITS ETF (USD) Accumulating
The ETF share class is Accumulating. It means that the dividends from the underlying shares (e.g. Starbucks dividends) are invested back into the same Stocks.
Why it matters?
- Distributing (also labelled as Dist, Dis, D, Income or Inc) – these shares will pay dividends and generate regular income. You can also use dividends as part of your rebalancing process.
- Accumulating (also labelled as Acc, A, Cap, C) – these shares will maximise your future returns as they automatically reinvest with no extra fees (saves your time and reduces transaction fees).
6. Share Class - Replication Type
Vanguard FTSE All-World UCITS ETF (USD) Accumulating ......
The name doesn’t state anything like Synthetic, SWAP etc, which likely means that the fund is just buying a physical sample basket of stocks to replicate the index. Most investors prefer physical ETFs, because they are simple to understand and don’t involve financial engineering.
Why it matters?
- Physical (No Specific Mention) – Most investors prefer this easy to understand replication. Full replication is employed if the underlying assets are readily available, reasonably small in number and do not significantly alter (e.g. 100 shares in the FTSE 100). Sampling is used if the benchmark contains many assets that change frequently (e.g. the MSCI World Index with more than 1,600 constituents).
- Synthetic (also labelled as SWAP, or S). These ETFs use financial derivatives to replicate the performance of the index to investors. Be aware that these ETFs do not hold the underlying positions directly but track nevertheless their performance. In certain markets, like the S&P 500 these ETFs are cheaper because of better tax treatment.
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Who Are Coaching Sessions For?
- Beginners often ask us: How do I reach my goals? When should I invest? How do I come up with the right asset allocation? What About Short-Term Investing?
- Advanced investors come to us to get their portfolios challenged: What could derail my strategy? Bond Ladder or Bond ETFs? What are risks related to Factor Premia? How much can I withdraw from my portfolio annually?
Don’t take our word for it. Check the reviews to see what other investors think.
Two Important Details not in the Name
By just looking at the ETF name, you already identified a lot of characteristics where you can cut costs and and risks you may take. But before you buy the Fund, have a look at other characteristics that are in the Fund’s factsheet.
FUnd Size And Inception Date
You can check the Fund size through the KIID, or Factsheet. Vanguard FTSE All-World (USD) Accumulating:
- Was established in July 2019 (but the Distributing Class has been around since 2012)
- Has $6bn of Assets Under Management (however, combining it with the Distributing Share Class the ETF total is $15.6bn)
Vanguard FTSE ALL-WORLD Accumulating SHARE CLASS Factsheet
Why it matters?
In Europe, up to 350 ETFs close each year. I have personally experienced fund closure and was caught off guard at that time and I didn’t sell before it closed. The proceeds of ETF liquidation were ultimately paid, but it took a few weeks before hitting my account, which is always an opportunity cost. The largest UCITS ETF has a size of €57bn. Only 8% of the Funds in Europe exceed €1bn in size. They represent 64% of the overall market. How can you reduce ETF closure disruptions?
- Size – The size of your specific Fund should be at the very least 100 million, ideally above €250m or over €1bn for most liquid markets.
- Track record – Ideally the Fund should have a reasonably long track record, 3 years at a minimum, preferably longer.
Largest UCITS ETFs
| # | ETF | Size in €bn |
|---|---|---|
| 1 | iShares CORE S&P 500 UCITS ETF USD | 57.0 |
| 2 | iShares MSCI World UCITS ETF USD | 52.0 |
| 3 | Vanguard S&P 500 UCITS ETF USD | 29.0 |
| 4 | iShares CORE MSCI EM IMI UCITS ETF USD | 17.5 |
| 5 | Invesco S&P 500 UCITS ETF | 15.5 |
Discover two cost reduction tricks In two other ETF Identifiers
Now that you know everything about the name of the ETF you’re buying, there are a couple of final identifiers that will come in handy when you use your broker account.
1. ISIN
Vanguard FTSE All-World (USD) has two share classes that you can find in the ETF Factsheet:
- Accumulating Share Class – its ISIN is IE00BK5BQT80 (see on JustETF.com)
- Distributing Share Class – its ISIN is IE00B3RBWM25 ( see on JustETF.com)
Want to learn a neat trick? You know where an ETF is domiciled by looking at the first two letters of its ISIN. Here the IE stands for Ireland. As such, it benefits from lower withholding taxes on US companies’ dividends.
Other websites where you can look up the ISINs are Trackinsight.com or Morningstar.com.
Why it matters?
In Europe, most ETFs are domiciled in Ireland or Luxemburg, for various tax breaks reasons.
2. TICKERS
Again, you can check the ETF Share Class Tickers through the KIID, or Factsheet.
Vanguard FTSE ALL-WORLD Accumulating SHARE CLASS Factsheet
Here is a summary by showing the currency next to the ticker:
Vanguard FTSE ALL-WORLD Accumulating SHARE CLASS
| Stock Exchange | Ticker | Trading Currency |
|---|---|---|
| XETRA | VWCE | EUR |
| London Stock Exchange | VWRA | USD |
| London Stock Exchange | VWRP | GBP |
| Euronext Amsterdam | VWCE | EUR |
| Borsa Italiana | VWCE | EUR |
Similarly, we can look for the Tickers for the Distributing Share Class:
Vanguard FTSE ALL-WORLD DISTRIBUTING SHARE CLASS
| Stock Exchange | Ticker | Trading Currency |
|---|---|---|
| XETRA | VGWL | EUR |
| London Stock Exchange | VWRD | USD |
| London Stock Exchange | VWRL | GBP |
| Euronext Amsterdam | VWRL | EUR |
| Euronext Paris | VWRL | EUR |
| Borsa Italiana | VWRL | EUR |
| SIX Swiss Exchange | VWRL | CHF |
Why it matters?
The problem in Europe is that the same ETF share class can trade on multiple stock exchanges. It will have the same ISIN but different tickers. That can get you confused about which exchange and currency to prioritise. Some may offer FX fee conversion savings.
Once you’ve decided, start typing the ticker (e.g. VWRL), and your broker may show you on which exchange you can buy the ETF. Below, are three Stock Exchanges show up:
- LSE (London Stock Exchange)
- AEB (Euronext Amsterdam)
- EBS (SIX Swiss)
To find it on the most liquid EUR Exchange, XETRA you will need to type VGWL.
FInding VWRL On Interactive Brokers
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NEXT STEPS
In the next article of this series, let’s have a look at ETF Costs. How can you slash the fees paid to the Asset Manager?
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