{"id":287162,"date":"2023-11-27T15:43:51","date_gmt":"2023-11-27T15:43:51","guid":{"rendered":"https:\/\/northern.finance\/unkategorisiert\/swap-etf-how-does-synthetic-replication-work\/"},"modified":"2025-09-15T16:19:50","modified_gmt":"2025-09-15T16:19:50","slug":"swap-etf-how-synthetic-replication-work","status":"publish","type":"post","link":"https:\/\/northern.finance\/en\/etf\/swap-etf-how-synthetic-replication-work\/","title":{"rendered":"Swap ETF &#8211; How does synthetic replication work?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>You may be in the process of building up a portfolio and are looking for suitable exchange-traded funds. In the course of your research, you will come across the topic of replication methods. Beginners often read that the synthetic replication method is more risky. But is this true and how exactly do swaps work?   <\/strong><\/p>\n\n\n\n<iframe width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/B7-eGAvSAKU?si=uK7ouM6Y2CqkdPnD\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<div>\n<div class=\"wp-block-group nf-info-boxen\">\n<div class=\"wp-block-group__inner-container\">\n<p class=\"nf-boxen-p-gut-zu-wissen\"><strong>In brief:<\/strong><\/p>\n<ul class=\"infobox-ul\">\n<li class=\"infobox-li\">ETFs can be mapped in different ways<\/li>\n<li class=\"infobox-li\">Physical replication replicates directly, whereas synthetic replication involves trading with a counterparty<\/li>\n<li class=\"infobox-li\">This means counterparty risk and this is how high it can be<\/li>\n<li class=\"infobox-li\">You should be aware of these advantages and disadvantages of swap exchange-traded funds<\/li>\n<\/ul>\n<\/div><\/div><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">The replication methods<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/northern.finance\/en\/etf\/how-safe-are-etfs\/\">How safe are ETFs<\/a>? This is partly due to the so-called replication method. An exchange-traded fund is always based on an index. There are different ways in which ETFs replicate their index. A rough distinction can be made between physical and synthetic replication.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What does physical replication mean?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The aim of a physical exchange-traded fund is to replicate the index as closely as possible. For this reason, all the securities it contains are replicated. It is therefore a direct replication, which is why this replication method is also known as <strong> full replication. <\/strong>   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This method is illustrated with an example. An exchange-traded fund on the <strong>DAX<\/strong>, the German share index, therefore contains all 40 companies included. These stocks or shares are bought according to their weighting.   <\/p>\n\n\n\n<div>\n<div class=\"wp-block-group nf-info-boxen-blau\"> \n<div class=\"wp-block-group__inner-container\"> \n<p class=\"nf-boxen-p-achtung\"><strong>Good to know: <\/strong><\/p>\n<p class=\"nf-boxen-p\">The composition is updated regularly. If a company drops out of the index, it is also replaced by another company in the exchange-traded fund. This ensures that the return on the indices can be generated as accurately as possible.  <\/p> \n<\/div><\/div><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">This type of replication can be more expensive and is time-consuming for the ETF provider. The exact composition must be checked at regular intervals. In addition, shares have to be bought or sold to ensure that the index is always accurately replicated. These fees can have an impact on ongoing costs such as the TER or <strong> total expense ratio<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Sampling <\/strong> is also part of physical replication and represents a kind of further development:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The exchange traded funds are purchased physically. The provider decides on a pre-selection and buys a representative quantity <\/li>\n\n\n\n<li>In this way, not all of the stocks included are bought exactly, only the most important and large positions<\/li>\n\n\n\n<li>Items that are only slightly present in the index are neglected<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The advantage of this replication method is that it <strong>saves costs<\/strong>. Indices that contain a large number of securities, such as global ETFs, often have positions with a weighting of just 0.01 per cent. These are not taken into account, which eliminates transaction costs and reduces the TER.   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The distribution of the physical replication is either <strong>accumulating <\/strong> or <strong>distributing<\/strong>. Accumulating exchange traded funds reinvest the dividends they earn. If you have a distributing option, you will receive the dividends directly into your account.   <\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Advantages of physical replication<\/strong><\/td><td><strong>Disadvantages of physical replication<\/strong><\/td><\/tr><tr><td>Low complexity<\/td><td>Accurate replication leads to higher costs (TER)<\/td><\/tr><tr><td>Index values are actually purchased<\/td><td>Not all indices can be mapped<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img decoding=\"async\" width=\"4320\" height=\"2000\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7.png\" alt=\"\" class=\"wp-image-287174\" style=\"aspect-ratio:2.1587301587301586;width:725px;height:auto\" title=\"Replication types\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7.png 4320w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7-300x139.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7-1024x474.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7-768x356.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7-1536x711.png 1536w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-1-7-2048x948.png 2048w\" sizes=\"(max-width: 4320px) 100vw, 4320px\" \/><figcaption class=\"wp-element-caption\">Replication types<\/figcaption><\/figure>\n<\/div>\n\n\n<h3 class=\"wp-block-heading\">How does synthetic replication work?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Unlike physical exchange traded funds, synthetic replications only track their index indirectly. There is a <strong>contract <\/strong> between the provider of your ETF and a swap partner, such as a bank: <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In some cases, the swap partner is the parent company of the actual provider<\/li>\n\n\n\n<li>Synthetic replication is somewhat more <strong>complex <\/strong> than physical replication.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This trade is based on the assumption that both portfolios will generate a similar return, otherwise one partner would realise losses. The counterparty undertakes <strong>to pay out the return on the index including all dividend payments<\/strong>.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In return, he receives a fee, the so-called swap fee. Exchange traded funds and partners therefore receive <strong>their partner&#8217;s return<\/strong>. This is an over-the-counter (<strong>OTC<\/strong>) transaction.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">But why are indices only tracked indirectly if it would be possible for investors to actually buy the positions? <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>advantage <\/strong> of the physical replication type is that <strong>illiquid indices<\/strong> can be replicated<\/li>\n\n\n\n<li>This advantage is particularly evident with small thematic ETFs<\/li>\n\n\n\n<li>It is often an <a href=\"https:\/\/northern.finance\/en\/etf\/10-best-etfs-for-the-future\/\">ETF with high returns<\/a> from a special niche<\/li>\n\n\n\n<li>This makes it easier to invest in markets that are difficult to access<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Aspects such as <strong>taxes <\/strong> and <strong>minimum costs<\/strong> are therefore taken into account in the actual composition of the synthetic variant. An exchange-traded fund on the DAX, for example, can also contain bonds in a foreign currency. The performance is unimportant here, as the return is exchanged.  <\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Types of swaps<\/h4>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>There are different types of swaps:<\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Funded,<\/li>\n\n\n\n<li>Fully Funded and<\/li>\n\n\n\n<li>Unfunded Exchange Traded Funds<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">A <strong>funded <\/strong> variant provides <strong> additional protection <\/strong> against the risk of default. The equivalent value of the ETF is deposited as collateral so that it can be used in the event of a default. The risk for investors is therefore particularly low.   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In the <strong> fully funded <\/strong> variant, no basket of securities is held. The assets are invested as a whole in an <strong>index swap<\/strong>. In addition, high collateral is deposited in order to reduce the counterparty risk.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The last variant is the <strong>unfunded <\/strong> option. In contrast to the options mentioned above, this option does not require any further collateral from the counterparty. By law, the risk of loss may not exceed ten per cent.   <\/p>\n\n\n\n<div>\n<div class=\"wp-block-group nf-info-boxen-blau\"> \n<div class=\"wp-block-group__inner-container\"> \n<p class=\"nf-boxen-p-achtung\"><strong>Good to know:<\/strong><\/p>\n<p class=\"nf-boxen-p\">However, this variant is hardly used any more. In everyday life, mainly funded and fully funded options with high collateral are used to protect investors.  <\/p> \n<\/div><\/div><\/div>\n\n\n\n<p class=\"wp-block-paragraph\">Exchange traded funds that replicate in the synthetic way are usually <strong>accumulating<\/strong>. In this way, you are more likely to benefit from the compound interest effect, as interest accrues on increasingly larger assets.  <\/p>\n\n\n\n<figure class=\"wp-block-gallery has-nested-images columns-default is-cropped wp-block-gallery-1 is-layout-flex wp-block-gallery-is-layout-flex\">\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"474\" data-id=\"287179\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-2-6-1024x474.png\" alt=\"\" class=\"wp-image-287179\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-2-6-1024x474.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-2-6-300x139.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-2-6-768x356.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-2-6.png 1080w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/figure>\n\n\n\n<h2 class=\"wp-block-heading\">Advantages and disadvantages of swap ETFs<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A look at the positive and negative aspects can help to better understand how it works and the associated consequences. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Advantages of the Swaps ETF<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">One positive aspect of the synthetic replication type is the often <strong> lower fees.<\/strong> These are lower compared to physical exchange traded funds, as there are fewer transaction costs.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Niche market<\/strong> and <strong> thematic ETFs<\/strong> are also an advantage of the synthetic replication type. It is often a <a href=\"https:\/\/northern.finance\/en\/etf\/top-etf-what-you-should-look-for\/\" data-type=\"link\" data-id=\"https:\/\/northern.finance\/etf\/top-etf\/\">top ETF<\/a> that can increase returns. These can be replicated better than with the physical variant. Swaps give you access to new markets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Examples would be commodity ETFs. There are various reasons for this, such as time zones or restrictions. Without the possibility of synthetic replication, the <strong>costs would be high. <\/strong>   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Theme ETFs are more suitable for advanced investors. They are often significantly less diversified and contain fewer companies, which increases the risk of the portfolio. They invest in <strong>innovative sectors <\/strong> or capitalise on hype. Thematic ETFs offer an opportunity for investors who already have a global world portfolio and would like to expand and develop it.    <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The differences in performance between the exchange-traded fund and the index are indicated by the <strong>tracking error<\/strong>. This is a key figure that is used to estimate the quality of an ETF: <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Synthetic replication leads to lower tracking error values<\/li>\n\n\n\n<li>However, this does not always have to have an impact on returns<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Disadvantages of the swap ETF<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">As already explained, synthetic replication involves trading with a counterparty. This trade gives rise to what is known as <strong> counterparty risk<\/strong>, which is related to whether the other party fulfils its obligations.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As mentioned above, the limit of the possible loss is <strong>10 per cent<\/strong>. This is regulated by law under the EU&#8217;s <strong><a href=\"https:\/\/eur-lex.europa.eu\/legal-content\/DE\/TXT\/?uri=celex%3A32009L0065\" target=\"_blank\" rel=\"noreferrer noopener\">UCITS Directive<\/a><\/strong>. In reality, this risk is usually much lower. Additional collateral protects you as an investor from further losses.    <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One disadvantage is the <strong>greater complexity <\/strong> of this type of replication. It can be much more complicated to understand synthetic exchange-traded funds, how they work and the securities they offer, especially for beginners who are just starting out in the world of finance and investing. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One problem with synthetic replication is that there is often <strong> less transparency<\/strong> compared to physical replication. The actual underlying portfolio is often not published and cannot be found in the factsheet. Otherwise, the usual ETF fund disadvantages apply. The following table provides an overview of all the <strong><a href=\"https:\/\/northern.finance\/en\/etf\/advantages-and-disadvantages\/\">advantages and disadvantages<\/a>: <\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Advantages of<\/strong> <strong>swaps <\/strong><\/td><td><strong>Disadvantages of<\/strong> <strong>swaps <\/strong><\/td><\/tr><tr><td>Lower fees due to lower transaction costs<\/td><td>Possible counterparty risk<\/td><\/tr><tr><td>Enables mapping of niches <\/td><td>Greater complexity<\/td><\/tr><tr><td>Lower tracking error difference<\/td><td>Partially less transparent<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Do swaps make sense?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Securities based on synthetic replication are also <a href=\"https:\/\/northern.finance\/en\/investieren-lernen\/low-risk-investments-2025\/\">safe investments<\/a>. You don&#8217;t have to be afraid of a total ETF loss. There are already a number of measures in place <strong>to minimise the risks for investors.<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These include <strong>laws <\/strong> such as the UCITS Directive, but also <strong>collateral <\/strong> that can be deposited and actively utilised in the event of a loss. A risk of 10 per cent does not exist in most cases.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Whether a swap exchange traded fund is worthwhile or not depends on the investor and which securities you are interested in. If you already have a broad-based global portfolio and would like to increase your returns through thematic <strong>ETFs and special niches<\/strong>, for example, synthetic replication could be an option. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The lower TER can also be worthwhile in some cases and increase the overall return. Of course, this depends on the specific ETF you are interested in. So there are certainly situations in which synthetic replication can be worthwhile.  <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img decoding=\"async\" width=\"4320\" height=\"2000\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3.png\" alt=\"\" class=\"wp-image-287184\" title=\"How an ETF works\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3.png 4320w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3-300x139.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3-1024x474.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3-768x356.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3-1536x711.png 1536w, https:\/\/northern.finance\/wp-content\/uploads\/2025\/01\/Grafik-3-3-2048x948.png 2048w\" sizes=\"(max-width: 4320px) 100vw, 4320px\" \/><figcaption class=\"wp-element-caption\">How an ETF works<\/figcaption><\/figure>\n<\/div>\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion: Swap ETF vs. physical replication<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Each exchange-traded fund is based on an index. These are replicated in different ways, either physically or synthetically. Full replication or <strong>physical replication<\/strong> replicates an index as accurately and directly as possible &#8211; the positions it contains are actually purchased.   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The <strong>sampling <\/strong> method is a further development. Investments are made in a representative selection and in the most important and largest positions. This saves costs compared to physical replication.   <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Swaps <\/strong> are somewhat more complex in structure, as a trade is made between the provider and another party, often a bank or the parent company. The counterparty undertakes to pay out the yield and dividend payments.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">All types have their <strong>advantages and disadvantages<\/strong>. Swap exchange traded funds are characterised by lower fees and a lower tracking error difference. They enable the mapping of special niches. On the other hand, there is a possible counterparty risk, greater complexity and lower transparency.    <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In summary, the <strong>risk <\/strong> of synthetic replication is somewhat higher, but <strong>manageable <\/strong> due to laws, collateral and investor management. Find out more about \u2018<a href=\"https:\/\/northern.finance\/en\/learn-how-to-invest\/crisis-proof-investment\/\" data-type=\"link\" data-id=\"https:\/\/northern.finance\/en\/learn-how-to-invest\/crisis-proof-investment-in-2025-you-should-know-these-tips\/\">crisis-proof investments<\/a>\u2019 and \u2018<a href=\"https:\/\/northern.finance\/en\/etf\/10-best-etfs-for-the-future\/\">the 10 best ETFs<\/a>\u2019 <a href=\"https:\/\/northern.finance\/en\/\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a>!<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">FAQ<\/h3>\n\n\n<div class=\"wp-block-uagb-faq uagb-faq__outer-wrap uagb-block-047049c2 uagb-faq-icon-row uagb-faq-layout-accordion uagb-faq-expand-first-true uagb-faq-inactive-other-true uagb-faq__wrap uagb-buttons-layout-wrap uagb-faq-equal-height     \" data-faqtoggle=\"true\" role=\"tablist\"><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-3dc617a1 \" role=\"tab\" tabindex=\"0\"><div class=\"uagb-faq-questions-button uagb-faq-questions\">\t\t\t<span class=\"uagb-icon uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M432 256c0 17.69-14.33 32.01-32 32.01H256v144c0 17.69-14.33 31.99-32 31.99s-32-14.3-32-31.99v-144H48c-17.67 0-32-14.32-32-32.01s14.33-31.99 32-31.99H192v-144c0-17.69 14.33-32.01 32-32.01s32 14.32 32 32.01v144h144C417.7 224 432 238.3 432 256z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t<span class=\"uagb-icon-active uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M400 288h-352c-17.69 0-32-14.32-32-32.01s14.31-31.99 32-31.99h352c17.69 0 32 14.3 32 31.99S417.7 288 400 288z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t<span class=\"uagb-question\"><strong>What is an ETF replication method?<\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Exchange Traded Funds unterscheiden sich dahingehend, wie der entsprechende Index repliziert wird. Es l\u00e4sst sich unterscheiden in eine synthetische und eine physische Replikationart. Physische Exchange Traded Funds funktionierten als Sample- oder Vollreplikation.   <\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-27ed541e \" role=\"tab\" tabindex=\"0\"><div class=\"uagb-faq-questions-button uagb-faq-questions\">\t\t\t<span class=\"uagb-icon uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M432 256c0 17.69-14.33 32.01-32 32.01H256v144c0 17.69-14.33 31.99-32 31.99s-32-14.3-32-31.99v-144H48c-17.67 0-32-14.32-32-32.01s14.33-31.99 32-31.99H192v-144c0-17.69 14.33-32.01 32-32.01s32 14.32 32 32.01v144h144C417.7 224 432 238.3 432 256z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t<span class=\"uagb-icon-active uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M400 288h-352c-17.69 0-32-14.32-32-32.01s14.31-31.99 32-31.99h352c17.69 0 32 14.3 32 31.99S417.7 288 400 288z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t<span class=\"uagb-question\"><strong>How do swap ETFs work?<\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>The underlying index is replicated synthetically. The provider of your exchange-traded fund enters into a kind of swap transaction with the credit institution, which guarantees the corresponding return on the index in return for the return achieved in the portfolio.  <\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-c6cddd6e \" role=\"tab\" tabindex=\"0\"><div class=\"uagb-faq-questions-button uagb-faq-questions\">\t\t\t<span class=\"uagb-icon uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M432 256c0 17.69-14.33 32.01-32 32.01H256v144c0 17.69-14.33 31.99-32 31.99s-32-14.3-32-31.99v-144H48c-17.67 0-32-14.32-32-32.01s14.33-31.99 32-31.99H192v-144c0-17.69 14.33-32.01 32-32.01s32 14.32 32 32.01v144h144C417.7 224 432 238.3 432 256z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t<span class=\"uagb-icon-active uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M400 288h-352c-17.69 0-32-14.32-32-32.01s14.31-31.99 32-31.99h352c17.69 0 32 14.3 32 31.99S417.7 288 400 288z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t<span class=\"uagb-question\"><strong>Swap Exchange Traded Fund or physical replication?<\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Both types of replication can be worthwhile. The costs of physical replication are usually more expensive. Synthetic replication is associated with greater complexity, lower tracking difference and lower transparency. It makes it possible to replicate niches.   <\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-d5d6646c \" role=\"tab\" tabindex=\"0\"><div class=\"uagb-faq-questions-button uagb-faq-questions\">\t\t\t<span class=\"uagb-icon uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M432 256c0 17.69-14.33 32.01-32 32.01H256v144c0 17.69-14.33 31.99-32 31.99s-32-14.3-32-31.99v-144H48c-17.67 0-32-14.32-32-32.01s14.33-31.99 32-31.99H192v-144c0-17.69 14.33-32.01 32-32.01s32 14.32 32 32.01v144h144C417.7 224 432 238.3 432 256z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t\t\t\t<span class=\"uagb-icon-active uagb-faq-icon-wrap\">\n\t\t\t\t\t\t\t\t<svg xmlns=\"https:\/\/www.w3.org\/2000\/svg\" viewBox= \"0 0 448 512\"><path d=\"M400 288h-352c-17.69 0-32-14.32-32-32.01s14.31-31.99 32-31.99h352c17.69 0 32 14.3 32 31.99S417.7 288 400 288z\"><\/path><\/svg>\n\t\t\t\t\t\t\t<\/span>\n\t\t\t<span class=\"uagb-question\"><strong>What are the advantages of a swap ETF?<\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Synthetic replication enables a lower tracking error, often lower costs due to lower transaction fees and investing in special niches. These could not always be replicated using a physical option, as the exchange-traded funds would be significantly more expensive.  <\/p><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>You may be in the process of building up a portfolio and are looking for suitable exchange-traded funds. In the course of your research, you will come across the topic of replication methods. Beginners often read that the synthetic replication method is more risky. But is this true and how exactly do swaps work? In [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":287168,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_uag_custom_page_level_css":"","footnotes":""},"categories":[1031],"tags":[1140,1153,1154,1155],"class_list":["post-287162","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-etf","tag-p2p-knowledge","tag-swap-en","tag-swap-business","tag-swap-etf-en"],"acf":[],"uagb_featured_image_src":{"full":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_.png",1920,1080,false],"thumbnail":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_-150x150.png",150,150,true],"medium":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_-300x169.png",300,169,true],"medium_large":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_-768x432.png",768,432,true],"large":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_-1024x576.png",1024,576,true],"1536x1536":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_-1536x864.png",1536,864,true],"2048x2048":["https:\/\/northern.finance\/wp-content\/uploads\/2023\/11\/EN-Swap-ETF-\u2013-Wie-funktioniert-die-synthetische-Replikation_.png",1920,1080,false]},"uagb_author_info":{"display_name":"Aleks Bleck","author_link":"https:\/\/northern.finance\/en\/author\/phil-nf\/"},"uagb_comment_info":0,"uagb_excerpt":"You may be in the process of building up a portfolio and are looking for suitable exchange-traded funds. In the course of your research, you will come across the topic of replication methods. Beginners often read that the synthetic replication method is more risky. But is this true and how exactly do swaps work? In&hellip;","_links":{"self":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/287162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/comments?post=287162"}],"version-history":[{"count":12,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/287162\/revisions"}],"predecessor-version":[{"id":325228,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/287162\/revisions\/325228"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/media\/287168"}],"wp:attachment":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/media?parent=287162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/categories?post=287162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/tags?post=287162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}