Accumulation Vs Distribution: Which share class is right for you?

A distribution (or distributing, Dist, or income) share class entitles the holder to a cash payment from the fund, usually paid at a set frequency. An accumulation (or Acc, or accumulating) share class doesn’t come with such a payment and instead the cash remains in the fund to be reinvested. The total returns from each type are the same; distributing share classes will see less price growth, all else being equal, reflecting the value of the cash paid out. 

What is a share class?

Funds, in this sense, are legal entities in their own right. Most Guinness funds are sub-funds of open-ended investment companies, or OEICs. This is a legal structure defined by regulation designed for collective investment – that is, to allow investors to pool their assets and benefit from economies of scale. Like other companies, OEICs have shares of different types – such as an accumulation and distribution. Because of the different characteristics and returns of each share class, they are treated as individual securities with their own identifiers such as ISINs. An investor can either subscribe to shares of a certain class directly via a fund’s administrator (such as Waystone in the case of Guinness funds) or gain exposure via an online platform, fund of funds, or other product.

Accumulation

A fund’s investments will often generate cash – dividends from equity holdings, bond coupons, or one-off payments such as share buybacks or the proceeds of sales or takeovers. Some funds target regular income as part of their investment strategy; for example, Guinness equity income funds only invest in dividend-paying companies. Holders of a fund’s accumulation share classes will have their share of this cash re-invested according to the investment strategy applied. Funds seeking capital appreciation alone often have accumulation share classes only. This is because fast-growing companies tend not to pay dividends, instead choosing to use any spare cash to invest in further growth.

Distribution

Holders of distribution share classes, if the fund has any, are paid their share of the income the fund receives. Guinness funds pay out the ‘natural’ income they receive; that is, all of the dividends they receive from companies in the portfolio. Some different types of funds such as investment trusts may manipulate the flow of income they pay out – perhaps by holding some cash back to top up lower payments in future, or selling assets as required in order to grow distributions consistently. Guinness funds aim for distributions to grow ‘organically’ through growth in the underlying dividends received from portfolio companies.

How does Distribution Work?

Funds pay distributions at a set frequency, sometimes varying by share class. Guinness funds pay either quarterly or biannual distributions. Like most shares, distribution shares go ‘ex-dividend’ on a certain date, which is the cut-off for a shareholder to receive that distribution. The date of payment follows shortly after the ‘ex-date’. Because some shareholders may not have held their shares for the full period since the last distribution, a process called ‘equalisation’ is performed to account for this. Investors who subscribed to shares directly with the fund’s administrator will have given their bank details for distributions to be paid directly to them; investors via platforms will have their distributions credited to their accounts in due course by the platform.

Who would be interested in Acc or Dist? Why should someone prefer one over the other? 

Compared to distribution share classes, accumulation classes lend themselves to a ‘buy and forget’ approach. Accumulation share classes offer a route to the compounding effect of reinvested income, which can be a powerful contributor to long-term returns. For an explanation of how this works for equity investors, see Why Dividends Matter to Investors.

In contrast, holders of distribution share classes will find themselves with portions of cash to put to another use. They may still be looking for capital appreciation – and all Guinness funds aim for this alongside the income they pay out – but might want to take distributions for various purposes. These include their personal income, or to be a source of cash within their portfolio for other investments or to pay charges, or because operational or tax arrangements require them to do so.

Which share classes are available for each Guinness fund?

Most of the Guinness funds with distribution share classes are in our range of equity income funds, which aim to invest in high-quality dividend-paying companies with potential for both capital appreciation and a growing income stream. With a shared approach to dividend investing which was developed in-house by our portfolio managers, our equity income range offers both global and regional approaches and proven track records going back as far as 2010. 

On the other hand, those Guinness funds whose main investment objective is capital appreciation alone tend to have accumulation share classes only. For example, the Guinness Global Innovators Fund, which invests in quality growth companies, does not have any distribution share classes.