Funds & wrappers
Synthetic ETF
An ETF that uses a swap to deliver an index return rather than holding the constituents.
How it works
The fund holds a basket of collateral and enters a swap with a bank that pays the index return. This can track more accurately and reach otherwise inaccessible markets.
It introduces counterparty risk: if the swap provider fails, the fund is left with the collateral rather than the promised return.
Related terms
- ETFA fund whose shares trade on an exchange throughout the day like an ordinary share.
- SwapAn agreement between two parties to exchange one set of cash flows for another.
- Counterparty riskThe risk that the other side of a contract fails to do what it promised.
- Tracking errorHow much a portfolio’s returns deviate from its benchmark, measured as the volatility of the difference.
More in Funds & wrappers
- Target-date fund
- Private equity
- Transaction costs
- Premium and discount
- Active management
- Portfolio turnover
- Active share
- Performance fee
All 25 Funds & wrappers terms · The full glossary, 433 terms
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