UCITS vs US ETF
total drag calculator
TER is not the full story. For most EU investors, FX conversion, spreads, and dividend withholding dwarf the headline expense ratio. This tool estimates all-in drag across both wrapper types under your actual workflow assumptions.
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What this tool is really measuring
- TER — fund expense ratio, charged daily.
- Dividend withholding — yield × US source withholding rate. A permanent leak on every distribution cycle.
- Tracking difference — any other drag vs the index (optional input).
- FX conversion — paid every time you convert currency to buy.
- Bid-ask spread — half-spread applied at each purchase.
- Commission + cadence — fixed fees drive batching, which creates cash drag between buys.
How the calculation works
A monthly simulation that applies recurring drag to the portfolio and execution costs at each buy event.
TER and dividend withholding are modeled as annual percentage leaks subtracted from the gross return rate. Withholding drag = dividend yield × US dividend share % × withholding rate %. This reduces the compounding base every month.
Monthly contributions accumulate in a cash buffer. On each cadence event (e.g. every 3 months), the buffer is invested: commission is deducted first, then FX and half-spread are applied to the remainder. Cash earns an optional yield while waiting.
- Dividend yield: 1.5–2.0% for a broad world/S&P 500 index.
- US dividend share: 100% for US-equity ETFs; ~60–65% for a global index.
- US withholding (UCITS): 15% is the Ireland-US treaty rate at fund level for most UCITS ETFs.
- FX cost: 0.15–0.25% on most neobrokers; near 0 if you fund in the listing currency directly (e.g. IBKR with USD base).
- Spread: 0.02–0.05% for liquid UCITS ETFs on Euronext/Xetra; 0.01–0.03% for US-listed.
Estimate total drag: UCITS vs US ETF
Enter your assumptions for both wrappers. Results update on every input change.
What to do with the result
Your execution costs on the US side (FX, spread, cadence) are outweighing its TER advantage. Fix execution first — or just stay with UCITS.
You likely have access to USD funding with low/no FX cost (e.g. IBKR with USD base) and the TER gap is meaningful. Check whether you can legally access US ETFs in your country first.
Choose the simpler, legally accessible option you can stick with for years. The behavioural cost of switching and second-guessing exceeds the modeled drag difference.
The broker determines most of this
FX cost, spread, and commission all flow from your broker choice. Interactive Brokers gives you the best control over currency — deposit EUR, convert once at institutional rates, hold USD. DEGIRO and Trading 212 work well for EUR-listed UCITS with near-zero FX friction.
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Frequently asked questions
What does total drag mean in this calculator?
Total drag is the combined leakage from recurring costs — TER, tracking difference, and dividend withholding — plus the execution friction you pay each time you buy: FX conversion, bid-ask spread, and commission. It is the sum of everything that reduces your compounding base, year after year.
Why is dividend withholding modeled as yield × withholding rate?
Because it is a permanent annual leak, not a one-time fee. If a fund yields 1.8% and 15% is withheld at source, you lose roughly 0.27% per year from the compounding base (1.8% × 15%). Multiply this over 10–30 years and it compounds against you, whether or not the market goes up.
Does this calculator include my local taxes?
No. Local capital gains tax, dividend income tax, and annual wealth taxes (like Netherlands Box 3) are not modeled. These vary enormously by country and can change the conclusion entirely. This tool focuses purely on the wrapper and execution layer — the costs that apply before your local tax authority gets involved.
Should I always pick the lowest TER ETF?
Not automatically. If you convert currency on every purchase and pay 0.20–0.30% in FX costs, a 0.05% TER advantage on the US ETF is irrelevant — it is swamped in the first year. Optimise your execution workflow first (broker choice, funding currency, buy frequency), then compare TERs within the shortlist you can actually access.
What inputs matter most for EU investors?
For most EU investors: (1) FX cost per buy — this is often the single biggest variable, (2) spread and liquidity of the specific ETF and exchange you use, (3) investing cadence — how fixed commissions drive you to batch, creating cash drag, and (4) dividend yield times withholding rate. TER is usually the last thing to optimize.
Can EU retail investors buy US-domiciled ETFs?
Most EU retail investors cannot buy US ETFs directly because US-domiciled funds do not provide the KID (Key Information Document) required under PRIIPs regulations. The practical default is UCITS equivalents, which track the same indices but comply with EU documentation rules. A small number of brokers or platforms allow access to US ETFs for professional or eligible counterparty clients — check the rules for your country before assuming access.
QuantRoutine provides educational content only. Nothing on this page is an offer, solicitation, or recommendation to buy or sell any security or to open an account with any specific broker. Investments can lose value, and past performance does not guarantee future results. You are responsible for your own investment, tax, and legal decisions. Always review each broker's current terms, fees, and eligibility on their official website before opening or funding an account.