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Investors spurn synthetic ETFs

Investors are shunning synthetic-based exchange-traded funds in favour of physically-backed ETFs, according to research from Morningstar.

It polled 593 people, comprising 501 individual investors and 92 professional investors, mostly advisers, for its November UK ETF survey.

Ninety per cent of all investors are wary of synthetic, swap-based ETFs, saying they are somewhat or very concerned by counterparty risk.

This is up from 82 per cent in March. Ninety per cent also say they prefer physicallyreplicated funds over synthetic ETFs, up from 74 per cent.

The most popular asset classes were equity-investing ETFs, with traditional broad equity index-tracking products among the most popular.
Morningstar says ETFs are typically found to represent up to 20 per cent of a current user’s portfolio.

Page Russell director Tim Page says: “Our problem is that, while information provided by product providers is getting better, the fundamental problem is it is difficult to know on a day-to-day business what collateral synthetic ETFs have got.”


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