IDVY

Overview

iShares Euro Dividend UCITS ETF EUR (Dist) (IDVY) tracks the EURO STOXX Select Dividend 30 index and holds its constituents directly, a physical replication managed by iShares. Dividends are paid out to holders rather than reinvested, so IDVY suits investors seeking regular income. The fund is domiciled in IE, which determines the withholding tax treatment applied to its dividends. Annual charges come to 0.40% of assets, and the fund holds 1.2B under management. Over five years the fund returned 4.1% a year on average, against 17.2% over three years. It is not eligible for the French PEA, but can be held in a securities account, a UK ISA or a German Depot. Its risk level is rated medium. Launched on 2005-11-04, the fund is denominated in EUR and has 21 years of track record. It is a UCITS fund, so it follows the European framework on diversification, liquidity and asset segregation. Because IDVY distributes, every payment is taxable in the year it is received, against the dividend allowance in a general account, while it stays sheltered inside an ISA or a SIPP. Domicile in IE sets the withholding the fund itself suffers on the dividends it receives, a cost absent from the stated fee but present in the return.

Ongoing charges of 0.40% place this fund 18th of 21 comparable funds, whose median is 0.35%. On £10,000 that costs about 40 a year and 400 over ten years at a constant amount, deducted daily and never visible on a statement: it shows up in the gap between the fund's return and its index's. At this level, neither low enough to be an argument nor high enough to be an obstacle, the decision rests elsewhere: on the index tracked, on the distribution policy, and on what your broker charges to buy.

Replication is physical: the fund actually holds the constituents of EURO STOXX Select Dividend 30, which makes its contents verifiable line by line in the issuer's report. Two points deserve attention. Securities lending first, practised by most physical funds to reduce costs: it earns a few hundredths of a point and creates an exposure to the borrower, covered by collateral, with the annual report stating the proportion lent. Rebalancing second: every change in the index's composition forces the fund to buy and sell, and those internal costs are not in the 0.40% headline. That is why two funds at the same price do not track their index with the same fidelity.

The domicile, Ireland, is not an administrative detail: it determines the withholding tax the fund suffers on the dividends it receives, and that loss appears in no fee table. On US equities, the Ireland-US treaty cuts withholding from thirty to fifteen per cent, which on a world index is mechanically worth several tenths of a point a year and explains Irish dominance of this segment. For the holder, the UCITS framework also brings the key information document in their own language, diversification rules, and separation of the fund's assets from the issuer's.

Income is distributed: the fund pays out the dividends it receives, usually one to four times a year. For a holder living off the portfolio that is what is wanted, since the income arrives without selling. For someone still accumulating it is a tax disadvantage in a taxable account: each payment is taxed in the year received, so the amount reinvested is reduced before it starts working again. Reinvesting by hand also costs a dealing commission each time and often leaves cash idle for want of the price of a whole unit. An accumulating class on the same index, where one exists, settles the question.

With 1.2 billion in assets and 21 years of history, this fund has the size and the record that make closure unlikely and the spread narrow. Three checks remain, once a year, none of which depends on the market. The ongoing charge, which an issuer revises without notice and whose gap to a competitor can invert. The tracking difference, the only figure that says whether replication stays faithful. And the methodology of EURO STOXX Select Dividend 30, which can change its selection or weighting rules without the fund's name moving, in which case what you hold has changed with nothing to announce it.

EURO STOXX Select Dividend 30 selects companies on their dividend, and that is an investment decision rather than a measurement. A high yield comes either from a solid payer or from a company whose price has fallen, and the screen does not always tell them apart: a yield index ends up mechanically overweight in the sectors that distribute heavily because they have little to reinvest. What counts is the selection rule, often several years of rising dividends, and the sector cap. A dividend, moreover, is not a return: it leaves the company and the price adjusts by as much.

Over one year the fund shows 11.0% against 4.1% annualised over five years: the recent year sits well above the long average. A gap in that direction mainly counsels care about the entry point, since what has risen sharply lately costs more today than a year ago, and the long average is the figure that best describes what to expect.

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