Exchange-traded funds (ETF) provider BetaShares has converted its two sector ETFs from a synthetic replication model to a physical structure, effective from today.
The move meant the company’s S&P/ASX 200 Financials Sector and Resources Sector ETFs would now only invest in physical shares that are constituents of the underlying index to generate the index returns and would not rely on derivatives, BetaShares head of investment strategy and distribution Drew Corbett said.
The change followed an internal company review, Corbett said.
“We felt that the new investment strategy, being physical replication, would be an improved structure that adds more comfort for investors,” he said.
“We formalised that through the lodging of the new product disclosure statement so that it is in line with other physical replication ETFs in Australia and the world.”
The change would not affect fees, he said.
Most ETFs were standard or physical ETFs and bought the shares and other securities of the index they were trying to match, according to ASIC.
Synthetic ETFs, on the other hand, may or may not directly own the underlying shares or other assets and use derivatives to track their performance, before fees.
“Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance tracking error. Downsides include increased complexity and counterparty risk,” the corporate regulator said.
