Q: In a recent answer your wrote HXS we like but many investors do not understand the swap/derivatives so we often mention it after other ETFs. I agree, I did an internet search to try to understand the swap/derivatives procedure, but am still confused. I understand the tax advantages of HXS held in a non-registered account, but if VFV was held in a RRSP is it not better to receive VFV capital gains PLUS dividends then just HXS capital gains & No dividends. For both VFV & HXS track the same S&P 500 Index, so their performance should be the same, less different MER charges. Thanks … Cal
5i Research Answer:
It is important to note that will HXS does not pay dividends, it still gets the 'benefit' of the dividends through its swap arrangements. In other words, a third party gets the dividend but provides HXS compensation in return via derivatives (effectively). The dividends are simply 'converted' to capital gains through derivatives. This is why returns of VFV and HXS have been essentially indentical.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in VFV.