3

There can be huge differences between the prices of the accumulating and distributing versions of ETFs following the same index.

For instance, as of 17 Jan 2020 for iShares Core MSCI EM IMI UCITS ETF - the accumulating ETF is 6 times more expensive than the distributing ETF:

accumulating distributing
EIMI / IE00BKM4GZ66 EIMU / IE00BD45KH83
NAV $31.02 $4.83
inception year 2014 2018
net assets $15,478M $313M

On the other hand, SPDR® Dow Jones Global Real Estate UCITS ETF (Dist) - the distributing ETF's NAV is twice as expensive as the accumulating ETF's NAV:

accumulating distributing
GLRA / IE00BH4GR342 GLRE / IE00B8GF1M35
NAV $20.26 $39.79
inception year 2019 2012
total fund assets $944M $944M
share class assets $0.40M $944M

The only differences between those ETFs seem to be the assets under management (AUM) and the inception dates.
What may explain the huge differences in NAV?
What are the consequences for buy-and-hold / long-term strategies?
Should the gap decrease in the long run?

2 Answers 2

2

Here are the factors influencing the NAV of an ETF:

  1. The initial NAV when the fund was created. If Fund A was created with an initial NAV of $10 and Fund B was created with an initial NAV of $20, and the funds are otherwise identical, then Fund B will continue to have an NAV twice that of Fund A.
  2. Returns on investment. As the assets in a fund yield positive returns, the NAV will increase, and as the assets yield negative returns, the NAV will decrease. In the case of this question, both funds hold the same assets, so this factor won't explain any differences in price.
  3. Dividends and distributions. If a fund pays dividends or otherwise distributes assets to its shareholders, its NAV will decrease.
  4. Splits. In a forward split, the NAV will decrease, and in a reverse split, the NAV will increase.

In the case of two funds that hold identical assets, the differences in NAV must come from factors 1, 3 and 4 here.

What are the consequences for buy-and-hold / long-term strategies?

Nothing. The NAV per share of an ETF is essentially meaningless. It's possible for Fund A to have an NAV of $3 per share, and for Fund B to have an NAV of $300 per share, and for the two funds to be completely identical as far as investors are concerned.

Should the gap decrease in the long run?

Generally speaking, no.

Out of the above 4 factors, factor 3 (dividends and distributions) will cause an accumulating ETF to slowly overtake a distributing ETF over time. However, in one of your two examples, the accumulating ETF already has a greater NAV per share, so factor 3 will cause the gap to widen.

Factor 4 (splits) could cause anything whatsoever to happen to the NAV per share. The fund administrators can do a split whenever they like. Most likely, they will split the fund whenever its NAV per share gets inconveniently large.

1
  • "The NAV per share of an ETF is essentially meaningless. [...] for the two funds to be completely identical as far as investors are concerned." Wrong. Some brokers allow you to buy fractions of an ETF, others don't. Investing $50 into this fund is only possible if the share price is below $50. Ideally $50 is close to a multiple of the share price.
    – glglgl
    Jun 14, 2021 at 9:38
1

The difference between them is more fundamental than just straight NAV and which one is in demand.

An accumulating ETF will take any interest or dividends it receives and put that money straight back into the ETF by buying more shares. A distributing ETF will pay all that money out to its investors.

In the examples you provided, that means that the inception dates really will matter. The 2014 ETF will have had 4 more years of paying those dividends to itself and compounding them automatically as opposed to the two-year-old distributing ETF which will have paid out all that money to investors.

Over time, the difference in NAV between the two should grow larger all else being equal.

The difference between the two for you comes down to which you prefer for your strategy (and possibly how you would prefer to be taxed). The accumulating ETF will effectively push all its gains into capital gains while the distributing will put much of its gains into income with some capital gains on the underlying shares.

1
  • "In the examples you provided, that means that the inception dates really will matter." But this hasn't to be the only reason for the price gap. EIMI started at a share price of $25, EIMU started at $5 per share. OTOH, GLRA started at $20 and GLRE at about $30, so the share prices cannot really be compared without taking that into account.
    – glglgl
    Jun 14, 2021 at 9:45

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .