Some may ask which type they should choose, but no single type of investment is better than the other. More importantly, investors should use the investment tool they are most comfortable with.
“I think when it comes to ETFs, whether they are synthetically or physically replicated, the main thing to understand for an investor is, what is this ETF giving me in terms of market exposure?” Zarate said in the article. “That’s basically the big – the first thing that you need to do when you are trying to go about choosing an ETF. You need to understand the index.”
In the U.S., synthetic ETFs may refer to leveraged and inverse fund products that utilize swaps in their strategies. About 3% of ETF assets in North America may be considered “synthetic,” whereas over one-third of ETF assets in Europe are synthetic products.
In Europe, there is a growing demand for physically replicated ETFs. Deutsche Asset and Wealth Management has even called physical ETFs the future for replicating mainstream equity indices. [Deutsche Believes ‘Physical’ ETFs Are The Future]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.