Personal Finance & Money Asked on August 31, 2021
For example looking at IE00B5BMR087 and IE0031442068 (both links in German), they seem to be very similar. Both try to track the S&P 500 in the same ways, the main difference seems to be that one is distributing while the other is accumulating.
However, there is a considerable difference in the price per share (~24 vs ~240). Why is that? And does the difference matter?
It seems to me that it wouldn’t matter, because if the underlying market goes up x%, 10 shares of the 24 ETF would go up the same value as 1 share of the 240 ETF. So the only difference (apart from distributing vs accumulating) would be the restriction to only be able to purchase shares in steps of 240 at a time for the more expensive ETF. But it seems odd to me that there would be such a price discrepancy (is the distribution responsible for all of that?), so I’m wondering if I’m missing something.
You are correct that it doesn't matter. The current value of one "share" of the S&P 500 is around USD2800 or EUR2400. An ETF typically chooses a ratio that it seeks to maintain with the index. One of your ETFs has chosen 0.01x and the other has chosen 0.1x. Sometimes an ETF can even split like a common stock, changing its ratio (and changing the number of ETF shares to compensate).
Correct answer by nanoman on August 31, 2021
If all else is equal, one potential advantage of a low-price ETF is that for small investors you may be able to take advantage of a Dividend Reinvestment Plan, whereas for high-price ETFs you may not.
If you have $10000 to invest, and your options are a $25/share ETF or a $500/share ETF, then you can buy 400 shares of the first and 20 of the second. Suppose the first offers a dividend of $0.20/share, and the second a dividend of $4/share (the same value). With a DRP you will be able to get 3 shares of the first, 12 per year. For the second ETF it will take 7 dividends to receive even 1 share through the DRP. While you wait for your DRP balance to add up to $500 you neither have direct access to the cash nor a share to trade.
Answered by curiousdannii on August 31, 2021
Simplistic example: Two sponsors raise $100 million for the purpose of creating an S&P 500 tracking ETF.
Fund A issues 1.0 million shares so its initial price is $100.
Fund B issues 2.5 million shares so its initial price is $40.
An equal dollar investment in either fund earns the same amount, assuming that both funds track the underlying index identically. Share price makes no difference in this context.
Answered by Bob Baerker on August 31, 2021
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