Morningstar filter weeds out synthetic ETFs

Morningstar is adding a filtering system to its website so users can easily identify synthetic exchange-traded funds.

The system will allow users to search for both swap-based and physical ETFs.

Morningstar director of European ETF research Ben Johnson says: “We are working to complete a tag within our database so investors using our website and our platforms can see whether an ETF is a physical or swap-based product. We think labelling in the title of swap-based products is best practice.”

Last week, the European Systemic Risk Board, which was chaired by Jean-Claude Trichet, suggested the possible withdrawal of the Ucits label from complex and opaque ETFs to ensure that Ucits products remain simple.

The ESRB’s suggestion comes in response to the European Securities and Market Association’s discussion paper on pol-icy guidelines for Ucits ETFs and structured Ucits.

Yellowtail Financial Planning managing director Dennis Hall says: “In the short term, the easiest solution is to have something like Morningstar’s tag, which is a good idea.

“In the longer term, I think the title must clearly indicate whether a product is synthetic or not.”

Hargreaves Lansdown investment manager Ben Yearsley says synthetic labelling should not necessarily be in the title but “should be easily available to potential investors”.