Currency Conversion Premiums - ETF Distrbutions

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Retired Guy
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Currency Conversion Premiums - ETF Distrbutions

Post by Retired Guy »

I own Vanguard Total US Market ETF (VTI-N) in a TDW RIF account with a DRIP arrangement. On Dec. 27th, a US$ dividend was received which was automatically converted by TDW to CAD$s at a rate of 1.33850 according to the on-line activity page, $0.01479 less than 1.35329 conversion rate reported at Oanda.com for that day. Speaking with a TDW representative, I was reminded that a conversion to CAD$s is required because RRIFs can only hold CAD$s. I was also informed that to carry out the DRIP, the now CAD$s must be reconverted to US$s to purchase VIT-N shares, another ~ -1.5% I presume, for a total of ~3% of the dividend consumed by TDW’s conversion transaction premiums. If I’m figuring this correctly, VTI-N DRIPs occurring four times a year would result in a TDW annual currency conversion premium of ~12% of the annual dividend amount . . . not an insignificant figure.

Are Canadian domiciled S&P 500 Index ETF (VFV-T) dividend payments also reduced by ~1.5% currency conversion premiums when US$ dividends are issued by Vanguard’s underlying US domiciled S&P 500 ETF? I have not seen any currency conversion figures regarding VFV-T DRIPs on my TDW statements. Perhaps I need to be alert to catch them on the account on-line activity page. Although not reported, it would seem safe to assume that Vanguard or TDW conversion premiums are involved in VFV-T CAD$ distributions, to the tune of perhaps an annual ~6% currency conversion premium in this case?

If I'm correct, I would welcome more transparency.
Spudd
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Re: Currency Conversion Premiums - ETF Distrbutions

Post by Spudd »

Firstly, you can't multiply the 3% fee times 4 to get a 12% fee. It is still 3% of the total dividends received, even if it happens 4 times a year.

Q1: $100 div, $3 fee
Q2: $100 div, $3 fee
Q3: $100 div, $3 fee
Q4: $100 div, $3 fee
Total: $400 div, $12 fee (i.e. 3%)

Secondly, I don't think Vanguard charges a currency conversion fee on divs, certainly not at the same level as TD. Any such fees should be built into the MER, it seems to me. So I believe you would save 3% of your divs by buying VFV instead of VTI.
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adrian2
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Re: Currency Conversion Premiums - ETF Distrbutions

Post by adrian2 »

Retired Guy wrote:I own Vanguard Total US Market ETF (VTI-N) in a TDW RIF account with a DRIP arrangement.
At TDW, do you hold VTI in a CAD denominated sub-account, or in the USD one?
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Spudd
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Re: Currency Conversion Premiums - ETF Distrbutions

Post by Spudd »

Spudd wrote:So I believe you would save 3% of your divs by buying VFV instead of VTI.
I said this, but on second thought, I think you might have to pay withholding tax of 15% on the divs if you have VFV, which would make it a worse option. Can anyone confirm?
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Re: Currency Conversion Premiums - ETF Distrbutions

Post by gsp_ »

adrian2 wrote:
Retired Guy wrote:I own Vanguard Total US Market ETF (VTI-N) in a TDW RIF account with a DRIP arrangement.
At TDW, do you hold VTI in a CAD denominated sub-account, or in the USD one?
RRIFs don't have currency specific sub-accounts at TDDI AFAIK. They are still like RRSP accounts were before they introduced USD RRSPs.



RG, is your RRIF setup for auto wash? If so, IIRC they will use the same rate for your DRIP as was used for your dividends. Hopefully I'm remembering correctly, it's been a while since I thought about this much(with the intro of USD RRSPs).

This issue was intensely discussed here and in other corners of the internet several years ago if you do a search.
Retired Guy
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Re: Currency Conversion Premiums - ETF Distrbutions

Post by Retired Guy »

Just spoke with TDW. I have an auto wash in place but it was explained that because of trading delays it is likely that a conversion was necessary. I was assured that I will receive the dividend in US$ and that a DRIP will occur without conversion complications. In the meantime my activity page shows that a conversion took place and that I have only CAD cash. I was told to wait and that the US cash should show up soon. Happy that I won't have two conversions regarding the DRIP which I was told would be the case earlier today.

Thank you for your replies. Resting more in peace.
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