I’ve been reading this forum for quite some time and now it’s time to move forward and ask some questions too
Recently I’ve been thinking if it’s possible to avoid having dividends without losing much from a diversification perspective (picking div-free stocks is not an option). The idea I came to is to use synthetic ETFs instead of physically replicated ones. But after checking a bunch of resources, surprisingly this approach doesn’t seem to be very widespread and popular. And I’m wondering why? Sure, there are some risks with synthetic ETFs, but after reading a bit on it, they seem to be reasonably safe with having at least 90% in collateral.
What percentage can be saved?
Just as an example, S&P500 yields ~2% divs on average, multiply this by your marginal tax and you’ll get what you can potentially save by using synthetic ETF (sure don’t forget a difference in TERs, i.e. VOO 0.03% vs SPXS.L 0.05%).
For a 30% marginal tax: savings = DIV_YIELD * TAX - (NEW_TER - OLD_TER) = 2% * 30% - (0.05% - 0.03%) = 0.6% - 0.02% = 0.58% p.a. Not bad, huh?
So, looking at the abovesaid, why don’t I see mass migrations of Switzerland-based investors to synthetic ETFs? Is that because of risks or I’m missing something else here?
I would be happy to hear your thoughts on the matter, especially if you already hold some synthetic ETFs