Deutsche Asset & Wealth Management’s decision to switch over to physical replication exchange traded funds could send waves through the European ETF industry.
DeAWM, the largest provider of so-called synthetic ETFs, is set to swap 18 of its largest ETFs into a physical replication form between January and June 2014, reports Attracta Mooney for Financial Times. [Deutsche Believes ‘Physical’ ETFs Are The Future]
“It’s a game-changer,” Detlef Glow, head of research for Europe, the Middle East and Africa at Lipper, said in the FT article. DeAWM “has surrendered on its strategy of synthetic replication and now shifted to physical, with synthetic as a non-core part of the business.”
Synthetic ETFs utilize swaps and derivatives to replicate the performance of the market, including leveraged/inverse funds or Undertakings for Collective Investments in Transferable Securities (UCITS) in Europe. Physical ETFs track an underlying index by selecting shares from within the underlying index through a full replication technique or a partial, sampling technique.
DeAWM’s move will create greater competition within the European ETF industry, especially as Deutsche goes toe-to-toe with iShares, the largest physical provider in Europe.