Cash drag is a term associated with exchange trade funds (ETFs), referring to the delay between when an ETF receives a dividend and when it uses the proceeds.
There are two options for dividend payments in ETFs, which can be either reinvested into the ETF (known as accumulated distribution) or redistributed to the ETF’s shareholders (known as income distribution). In both instances, there may be cash drag between when the ETF provider receives the dividend payment to when they reinvest or distribute it.
