I want to understand the real cost of owning a reinvesting *”investment trust”* (投資信託) that wraps a US-domiciled ETF.
Let’s assume that:
* The underlying US ETF has a net management fee of 0.20%.
* The underlying US ETF has an average bid/ask spread of 0.01%.
* The underlying US ETF has distributions, and its average yield is 3%.
* The reinvesting investment trust has a net management fee of 0.70%.
* The reinvesting investment trust is held in NISA.
* The investor is not a US tax person.
What is the total cost of owning this fund, i.e. what is its net return to the investor (USD-normalized to keep it simple) if the US ETF has a gross return of X%?
I’m still somewhat confused about a bunch of things, for instance:
* How the fund manages the 10% tax on distributions withheld by the IRS.
* Whether or not it takes advantage of the tax treaty, and how.
* Whether it also pays tax on dividends to the NTA before reinvesting those.
* If so, using what conversion rate? TTM?
* Should the bid/ask spread of USDJPY be added since it’s an intrinsic transaction cost?
* Does the fund management fee “pays” for the underlying ETF’s management fee, i.e. is it included (seems unlikely as some funds wrap ETFs with an higher ER) ?
* Whether the intermediate “mother funds” the big players (MUFG, Daiwa, etc) seem to use for self-clearing their transactions really dampens down the cost for the investor.
* Whether they have clever tricks to reduce intrinsic costs (e.g. US-domiciled clearing subsidiaries), and whether it benefits the investor or not.
by Alara_Kitan
