Invesco MSCI World UCITS ETF Dist lists on the London Stock Exchange

The synthetic, quarterly-distributing share class trades in sterling pence and US dollars and has a total expense ratio of 0.05% p.a.

The fund tracks the net total return of the MSCI World Index, which covers large and mid-cap companies in developed markets. It uses synthetic replication through unfunded swaps and pays dividends every quarter. The new listing adds a distributing option to the range of MSCI World ETFs available to UK investors on the London Stock Exchange.

Trading lines on the London Stock Exchange

The fund has two lines on the London Stock Exchange. MWDP trades in sterling pence (GBX). MWDD trades in US dollars, with Flow Traders listed as market maker, according to justETF.

Outside London, the same share class is listed on Xetra in euros and on SIX Swiss Exchange in Swiss francs. Invesco’s UK product page lists the units as eligible for ISA and SIPP accounts.

The MSCI World Index

The MSCI World Index measures equity market performance across developed-market countries. It includes large and mid-cap companies and covers approximately 85% of the free float-adjusted market capitalisation in each country.

The ETF aims to deliver the net total return performance of the index, less the impact of fees. The net total return version reinvests dividends after the deduction of withholding taxes.

How the synthetic replication works

The fund does not hold the index constituents directly. Instead, it holds a basket of equities that typically delivers most of the fund’s return, but these securities would ordinarily differ from those in the index.

The fund then enters into unfunded swaps with one or more approved counterparties. Under these contracts, the counterparty pays the fund any difference between the return of the index and the return of the equity basket. Invesco states that the aim is closer and more consistent tracking of the index than physical replication alone would generally allow.

Swaps linked to an enhanced withholding tax index

The fund’s objective is to replicate the net total return index. However, the swaps reference an enhanced withholding tax version of the MSCI World Index. As a result, Invesco states that the ETF’s performance before fees is likely to exceed the return of the standard net return index.

The difference comes from the tax treatment of dividends. A standard net return index applies a withholding tax rate to dividends that can be higher than the rate available to some market participants. An enhanced version reflects lower withholding tax rates on these dividends.

Distribution policy

The fund distributes dividends on a quarterly basis. Distributing ETFs pay out income to investors, while accumulating share classes reinvest it in the fund. For investors who hold the ETF outside tax wrappers, UK Reporting status determines how distributions and reportable income are treated for tax purposes.

What investors acquire

The ETF is passively managed. An investment in the fund is an acquisition of units in a passively managed, index-tracking fund. It is not an investment in the underlying assets held by the fund.

Conclusions

With this listing, the Invesco MSCI World UCITS ETF Dist is available on the London Stock Exchange in both sterling pence and US dollars. The fund provides synthetic exposure to developed-market equities through the MSCI World Index and distributes income quarterly. Its reported TER of 0.05% is below the levels shown for the main competing MSCI World ETFs. The swaps are linked to an enhanced withholding tax version of the index, and swap counterparties may contribute up to 0.08% of NAV per year towards the fund’s costs.