Deleted User
1Yr
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@BearStearnsCFO How can that be? The value depends on how the companies in the ETF perform.
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@BearStearnsCFO I don't think that the distribution will increase the value of the ETF shares, because the share price of the distributing company will decrease according to the distributed dividend. As with the investor who holds individual shares, this should also apply if an ETF holds the share? I think that initially only the cash position within the ETF increases. Only when this cash is invested in further shares and their price subsequently increases can the compound interest effect arise and the value of the ETF shares increase accordingly.
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@ChrisBizz Exactly, and reinvesting the distribution is called reinvesting. distributing funds, on the other hand, become worth less and less because the net asset value (NAV) decreases.
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•@randomdude And a kind of compound interest effect is created because the distributions are used to buy new shares, which increase in value.
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•@randomdude I agree (and just added the same thought when you posted). Per ETF share, you then have more shares of the companies included than before. What I was not aware of (see the video from @California_Dreamin): It may well be that not only shares of the distributing company are bought, but that shares of all companies included in the ETF are bought. I'm still not clear whether this is good or bad. After all, the carrots in the index would then also be bought from the nice dividends...
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@ChrisBizz 1. of course, carrots also (and especially?) distribute 😜 2. the distributions are used for rebalancing, because such a fund management always wants to track the index as closely as possible.
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•@randomdude Yes, that's a good point about rebalancing 👍
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