Q1. Which ETFs will be converted into total return funds?
The following 13 ETFs will be converted into Total Return ETFs. As a result, dividends will be continuously.…
reinvested into the funds instead of being distributed to the shareholder.
* Please note that from 11/05/2010 the Lyxor ETF Eastern Europe (CECE Extended EUR) will track the CECE EUR instead of the CECE Extended EUR
Q2. What is happening to dividends shareholders were supposed to receive?
Instead of being paid to the shareholder, dividends will be reinvested in the ETF.
Example:
ETFs are equal to a fraction of the index (1/10 or 1/100) plus the dividends and minus the management fees
NAV of ETF = Index Value * Index Fraction + (dividends – management fees)-Cash component
Let say that the NAV of our ETF is GBP 15:
NAV ETF (GBP 15) = Index Value * Index Fraction (GBP 10) + cash component (GBP 5)
When the fund pays a dividend, the NAV of the ETF decreases by that amount.
In our example the fund would have paid GBP 5 as a dividend thus the NAV would have decreased to GBP 10.
Dividends are still benefiting the shareholder however they are no longer distributed. Therefore, the NAV will never decrease again from a dividend payment.
Q3. Why is Lyxor converting these ETFs to Total Return ETFs?
Following a number of changes in the UK Fund Tax Legislation and under their French SICAV fund structure, this conversion will allow these ETFs to remain competitive and investors will not suffer from any potential tax disadvantages which could arise as a result of a dividend payment.
Q4. Should investors do anything throughout the conversion process?
Nothing, the process is handled on Lyxor Asset Management side. The conversion will take place on Tuesday, May 11th.
Q5. Which ETFs will continue to pay dividends in the Lyxor ETF range of products listed on the LSE?
Q6 Will these ETFs become Total Return ETFs in the future?Which ETFs will continue to pay dividends in the Lyxor ETF range of products listed on the LSE?
These ETFs are structured under Luxembourg SICAV and they remain competitive for investors even when paying dividends. Thus these ETFs will remain price return ETFs paying dividends.
Source: ETFWorld – Lyxor
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