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An accumulating ETF reinvests the dividends into new shares of the fund. So, essentially, no distributions are made to the shareholders.

Why Choose an Accumulating ETF?

An accumulating ETF seems particularly convenient for those investors who would like to build capital with a long term horizon and do not want to actively manage their investments. In fact, when the dividends from the underlying companies are received, they are not handed out to shareholders but instead reinvested inside the fund. Over time, this gives way to the so-called compounding effect that could greatly contribute to increase the value of your investments. In fact, shares obtained through the dividends end up generating in turn additional distributions; and as time goes by the cycle repeats itself compounding the gains.

Here a summary of the main pros of an accumulating ETF:

Build capital with a long-term approach
No active cash management required
Benefit of compounding effect over time
In some jurisdictions tax regime could be more favorable for accumulating ETFs

What to Keep in Mind About Accumulating ETFs

An accumulating ETF might not be the best choice for those seeking regular income. Whether to be able to pay upcoming expenses or to receive a regular cash flow, an ETF of this kind doesn’t offer such a possibility. Accordingly, it is commonly perceived as a better choice for investors who want to let their capital grow by maximizing the compounding effect. Moreover, accumulating ETFs can save time and efforts used for investment management.

Example of an accumulating ETF: VanEck Semiconductor UCITS ETF

This pure-play ETF enables an investment in companies driving the so-called 4th industrial revolution and adopts an approach that reinvests the dividend income. This accumulating ETF could represent a good solution to build capital and exploit the benefits of the compounding effect. However, it should be noted that semiconductors are very cyclical in their nature and their demand could be heavily affected by economic conditions.