View more on these topics

Rising counterparty risk sees Architas shun synthetic ETFs

Architas chief investment officer Caspar Rock says the firm’s multi-manager team is avoiding synthetic ETFs as counterparty risk has increased due to bank downgrades.

Synthetic ETFs get access to assets by using derivatives such as swaps, as opposed to physically-backed ETFs which hold the underlying assets the ETF tracks.

Rock says the multi-manager range has had exposure to synthetic ETFs in the past where he has not been able to find a tracker fund that accesses the same asset but he is avoiding them now as there is too much counterparty risk.

He says: “We prefer to use passive funds over synthetic ETFs because they are cheaper. The really low-cost ETFs are synthetic and we do not want to use them. There is no such thing as a free lunch and you are taking on counterparty risk in swap-based ETFs. It has become such a high-profile concern in the last few months because of the European bank downgrades.”

The European Commission, the FSA and the Serious Fraud Office have all sounded warnings over synthetic ETFs in the last year. The FSA and European Commission said they are concerned at ETFs’ use of derivatives while the SFO voiced concerns about the way they are marketed.

Last month, Morningstar released a report on synthetic ETFs in Europe, Asia, Australia and Canada. It concluded there needs to be common industry standards on labelling synthetic ETFs and disclosing information about the funds’ asset or collateral baskets, counterparties and embedded costs.

Values to Vision Financial Planning director Nick Lincoln says: “I only use ETFs that use physical replication. You have counterparty risk with synthetic ETFs, so I avoid them. Also, synthetic ETFs tend to track esoteric areas of the markets, which clients do not really need access to.”


Rockingham clients rescued by Carey Pensions UK

Clients who invested their Sipps with collapsed IFA Rockingham have been given a lifeline with the transfer of their investments to Sipp provider Carey Pensions UK. Rockingham Independent was put into liquidation in March. The process of putting Rockingham into liquidation meant the firm had to apply to be closed down, and therefore could no […]


Base rate held and no more QE

The Bank of England’s monetary policy committee has decided to hold base rate at a record-low 0.5 per cent for the 39th consecutive month and to keep its programme of quantitative easing at £325bn. Base rate was cut to 0.5 per cent in March 2009, on the same day the BoE initiated a programme of […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm