{"id":299562,"date":"2024-11-19T15:53:38","date_gmt":"2024-11-19T15:53:38","guid":{"rendered":"https:\/\/northern.finance\/uncategorized\/physical-or-synthetic-etfs-the-ultimate-guide-to-help-you-decide\/"},"modified":"2025-11-19T17:25:04","modified_gmt":"2025-11-19T17:25:04","slug":"physical-or-synthetic-etfs","status":"publish","type":"post","link":"https:\/\/northern.finance\/en\/etf\/physical-or-synthetic-etfs\/","title":{"rendered":"Physical or synthetic ETFs: the ultimate guide to help you decide"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\">Are you ready to invest in ETFs but unsure whether to choose a physical or synthetic ETF? This is a valid question, as both types offer advantages and disadvantages.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this comprehensive guide, I will show you all the details you need to make an informed decision. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You will learn how both types of ETFs work, what costs you will incur and what risks you should be aware of. By the end, you will know exactly which ETF is better suited to your investment strategy. <\/p>\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\">Physical ETFs purchase the securities in the index directly. They are transparent but often costly. <\/li>\n<li class=\"infobox-li\">Synthetic ETFs replicate the index using swaps. They are less expensive but more complex and riskier. <\/li>\n<li class=\"infobox-li\">Your decision depends on your priorities: security vs. cost, transparency vs. efficiency.<\/li>\n<\/ul>\n<\/div><\/div><\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is the difference between physical and synthetic ETFs?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Unlike synthetic replication, a physically replicating ETF invests directly in the securities included in the index. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The aim is to replicate the index as closely as possible. In synthetic, or indirect, replication, the replication is based on a swap transaction.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In simple terms, the <a href=\"https:\/\/northern.finance\/en\/etf\/investing-in-etfs\/\">ETF <\/a>enters into a contract with a bank or financial services provider who, in return for a fee, provides the index return. This process is known as a total return swap.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Physical ETFs: The safe and transparent option<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Physical ETFs are the \u2018classic\u2019 form of index replication. The ETF provider buys the stocks included in the index directly and holds them in the fund&#8217;s assets.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Let&#8217;s say you decide to invest in a DAX ETF: the fund actually invests in all 40 DAX companies in the same proportions as they are weighted in the index. This gives you, the investor, the certainty that your money is really invested in the stocks that make up the index. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This method is particularly attractive to security-conscious investors, as it is easy to understand. You can see which stocks the fund holds at any time and be sure that your investment is directly linked to the underlying securities.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, there are two different strategies that physical passive funds can use to replicate an index: full replication and sampling.<\/p>\n\n\n\n<iframe width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/XdjBBlZxKpY?si=wkT-ynWgjpnD354V\" 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<h3 class=\"wp-block-heading\">Full replication vs. sampling<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">With full replication, the ETF buys every single stock in the index in the exact proportion in which it is weighted in the index. For an index such as the DAX, which only has 40 companies, this is relatively straightforward and efficient. Full replication vs. sampling  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The method ensures that the index performance is replicated very accurately, which means that tracking errors are minimal. However, full replication can be very expensive and complex for indices with hundreds or thousands of positions (such as the MSCI World with over 1,600 stocks).  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The fund has to carry out many transactions, which drives up administrative costs and thus ETF costs (<a href=\"https:\/\/northern.finance\/en\/etf\/etf-costs-in-detail\/\">TER<\/a>).<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To save costs, many index funds use sampling for very extensive indices. Instead of buying all the stocks in the index, the fund manager selects a representative sample of the most important stocks that reflect the index as closely as possible.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This selection is based on factors such as market capitalisation, the tradability of the stocks and their influence on overall performance. Although sampling is less expensive, it can lead to a slightly higher tracking error, as not all positions in the index are fully covered. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Advantages of physical ETFs<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>High transparency<\/strong>: You can see exactly which stocks your money is invested in, as many providers disclose the fund composition on a daily basis. This allows you to track your investments in detail at any time. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Secure investment:<\/strong> Your money is managed as a special fund, which protects it in the event of the ETF provider&#8217;s insolvency. The stocks belong to you as an investor and not to the provider, which offers additional security. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Simplicity:<\/strong> The structure of physical ETFs is easy to understand, even for ETF beginners in the field of capital investment. You invest in a fund that directly holds the stocks of an index without the use of complex derivatives or swap transactions. This simplicity makes it an attractive option for investors who want to build up retirement savings, for example.  <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Disadvantages of physical ETFs<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Higher costs<\/strong>: Physical index funds often incur higher fees because transaction costs are incurred when buying and selling stocks. With global indices such as the MSCI World, these costs can be particularly significant and reduce returns. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Tracking error<\/strong>: Physical ETFs may exhibit small deviations from the index performance, known as tracking error. These arise, for example, from dividend payments or changes in the index and may affect the accuracy of the replication. <\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Imagine you are an investor who values security and transparency above all else. You want to know exactly where your money is invested and are looking for a simple, transparent investment opportunity.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A physical ETF gives you this security: your money is invested in real stocks, and you can track its performance at any time. A physical ETF is the right choice for you because it offers you a high degree of control and confidence. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/northern.finance\/en\/etf\/etfs-vs-funds-difference-use\/\" data-type=\"post\" data-id=\"282715\">ETFs vs funds:<\/a> Learn the differences between ETFs and traditional investment funds.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Synthetic ETFs: inexpensive and efficient, but risky<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Synthetic passive funds are the low-cost alternative to physical ETFs. Instead of buying the stocks in the index directly, they use swaps. Swaps are exchange transactions with banks or other financial institutions that guarantee that the ETF will replicate the performance of the index.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">A swap is a contract between the ETF provider and a financial institution (the swap partner). The swap partner undertakes to pay the ETF the return on the index.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In return, the swap partner receives the return on a securities portfolio that serves as collateral. This sounds complicated, but it is an efficient method of replicating indices that are difficult to access or expensive to replicate. <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"569\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Index-Synthetischer-ETF-2-1024x569.png\" alt=\"\" class=\"wp-image-299580\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Index-Synthetischer-ETF-2-1024x569.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Index-Synthetischer-ETF-2-300x167.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Index-Synthetischer-ETF-2-768x427.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Index-Synthetischer-ETF-2.png 1080w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h3 class=\"wp-block-heading\">Advantages of synthetic ETFs<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Lower costs:<\/strong> Synthetic index funds are generally cheaper because they do not have to trade all stocks. Instead, the index return is achieved through a swap, which reduces trading costs. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Accurate replication<\/strong>: Especially for large or hard-to-access indices, replication through swaps is often more accurate than with physical index funds. This minimises the deviation between fund performance and index performance. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Access to specialised markets<\/strong>: Synthetic ETFs allow you to invest in markets that are difficult to access physically, such as commodity or emerging market indices. These ETFs often offer a cost-effective way to invest in exotic or regulated markets. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Disadvantages of synthetic ETFs<\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Counterparty risk<\/strong>: You are dependent on the creditworthiness of the swap partner. If the swap partner becomes insolvent, this may adversely affect the ETF. Although this risk is limited by law in the EU to 10% of the fund assets, a residual risk remains.  <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Lower transparency<\/strong>: It is often unclear which securities the ETF actually invests in, as the security portfolio is not always disclosed. This can make it difficult for investors to assess the actual risks. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Complexity<\/strong>: The way synthetic ETFs work is difficult for many investors to understand. The underlying swap mechanisms and contract details often require a deeper understanding of finance. <\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Types of synthetic replicating ETFs<\/h3>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"569\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Arten-von-synthetisch-replizierenden-ETFs-2-1024x569.png\" alt=\"\" class=\"wp-image-299585\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Arten-von-synthetisch-replizierenden-ETFs-2-1024x569.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Arten-von-synthetisch-replizierenden-ETFs-2-300x167.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Arten-von-synthetisch-replizierenden-ETFs-2-768x427.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Arten-von-synthetisch-replizierenden-ETFs-2.png 1080w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<p class=\"wp-block-paragraph\">The chart shows two types of synthetic replicating ETFs: unfunded swaps and funded swaps. With an unfunded swap, investors&#8217; money remains in the ETF, which invests it in securities such as stocks. These securities serve as collateral. The ETF enters into a swap transaction with a swap counterparty, often a bank.    <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In this swap transaction, the ETF passes on the return on the collateral to the counterparty and receives in return the return on the index it wishes to track. As a result, the collateral portfolio remains part of the fund&#8217;s assets and is protected. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In a funded swap, the ETF transfers the investors&#8217; money directly to the swap counterparty, who then delivers the index return. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The counterparty deposits collateral that the ETF can access in the event of default or insolvency. The ETF has a legal claim to this collateral, which provides additional protection.  <\/p>\n\n\n\n<div>\n<div class=\"wp-block-group nf-info-boxen-blau\"> \n<div class=\"wp-block-group__inner-container\"> <p class=\"nf-boxen-p-lesetipp\"><strong>Just to recap:<\/strong><\/p> \n<p class=\"nf-boxen-p\">The unfunded swap leaves the capital in the ETF, while the funded swap transfers the capital to the counterparty, but with the security of collateral.<\/p> \n<\/div><\/div><\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Further reading<\/strong>: Take a look at our tips for building the ideal <a href=\"https:\/\/northern.finance\/en\/etf\/creating-an-etf-portfolio\/\">ETF portfolio<\/a> and find out how you can make your investment strategy even more efficient.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Physical vs. synthetic ETFs: A comprehensive comparison<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Choosing between physical and synthetic index funds is one of the most important decisions you can make as an investor. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Both forms of index replication have their own advantages and disadvantages, and it is crucial to understand how they differ in order to choose the best option for your investment strategy. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To help you make this decision, let&#8217;s take a detailed look at the most important criteria.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Criterion<\/strong><\/td><td><strong>Physical ETFs<\/strong><\/td><td><strong>Synthetic ETFs<\/strong><\/td><\/tr><tr><td>Cost factors<\/td><td><strong>Higher<\/strong>: transaction fees, custody and management costs<\/td><td><strong>More cost-effective<\/strong>: less trading effort thanks to swaps<\/td><\/tr><tr><td>Reproduction<\/td><td><strong>Direct replication<\/strong>: share purchases, tracking error possible<\/td><td><strong>Exact replication<\/strong>: swaps minimise tracking error<\/td><\/tr><tr><td>Security<\/td><td><strong>Very secure<\/strong>: stocks protected as special assets<\/td><td><strong>Counterparty risk<\/strong>: limited to 10% of fund volume<\/td><\/tr><tr><td>Transparency<\/td><td><strong>High transparency:<\/strong> daily insights into fund holdings<\/td><td><strong>Lower transparency<\/strong>: Complex swap structuresHigh transparency: Daily insights into fund holdings<\/td><\/tr><tr><td>Area of application<\/td><td>Ideal for <strong>liquid and simple markets<\/strong> (e.g. DAX, S&amp;P 500)<\/td><td>Suitable for <strong> hard-to-reach markets<\/strong> (e.g. commodities, emerging markets)<\/td><\/tr><tr><td>Tax benefits<\/td><td><strong>Less efficient<\/strong>: direct taxation of dividends<\/td><td><strong>Tax advantages<\/strong>: Efficient dividend handling<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"wp-block-heading\">Cost comparison: physical vs. synthetic ETFs<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The costs of an ETF include the total expense ratio (TER) and the spread. With a portfolio value of \u20ac10,000 and a TER of 0.5%, you pay \u20ac50 in management fees each year, regardless of how the fund performs. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The spread, i.e. the difference between the purchase price and the selling price, affects the actual cost of your investment. The spread can be high, especially for ETFs that are rarely traded or illiquid, which reduces your return. A wide spread means higher costs, as you receive more when you buy and less when you sell.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to choose ETFs with a low spread, as this indicates high liquidity. Popular indices such as the S&amp;P 500 or the DAX usually have narrow spreads. For example, a spread of 0.2% on an investment of \u20ac10,000 corresponds to a cost loss of \u20ac20.  <\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img decoding=\"async\" width=\"1024\" height=\"569\" src=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Synthetisch-Physisch-1-1024x569.png\" alt=\"\" class=\"wp-image-299590\" srcset=\"https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Synthetisch-Physisch-1-1024x569.png 1024w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Synthetisch-Physisch-1-300x167.png 300w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Synthetisch-Physisch-1-768x427.png 768w, https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/Synthetisch-Physisch-1.png 1080w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h3 class=\"wp-block-heading\">Tax comparison for physical and synthetic ETFs<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The tax treatment of your index fund is an often overlooked but important factor that can affect your net return. It depends on the country in which the fund is domiciled and the tax regulations that apply there. Some ETFs offer tax advantages, while others may be less favourable from a tax perspective.  <\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Physical ETFs:<\/strong> As a rule, dividends received by the fund are passed on directly to investors or reinvested in the fund. Depending on the origin of the dividends, withholding taxes may be levied, which in some countries cannot be recovered or can only be recovered in part. <\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Synthetic ETFs<\/strong>: These can often be more tax-efficient because dividends and other income can be \u2018layered\u2019 within the swap. This can reduce tax burdens in certain cases, especially if the ETF is domiciled in a tax-friendly country. <\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Before purchasing an ETF, check what tax implications it could have on your investment strategy. In some cases, it makes sense to seek tax advice, especially if you are investing in foreign passive funds. A careless choice could significantly reduce your returns through tax payments.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Graphic designer: The graphic in the form of a pie chart illustrates the various cost factors (e.g. TER, spread, tax implications) and shows the significance of costs for returns.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Further reading: You can find out more about the tax advantages of ETFs in our article on ETF pension provision.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion: Physical or synthetic ETFs \u2013 which is the best choice for you?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The choice between a physical and synthetic ETF depends on your investment goals and risk tolerance. Physical ETFs offer security and transparency, but are often more expensive. Synthetic index funds are more cost-efficient and offer more accurate replication, but they come with counterparty risk.  <\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Consider what is more important to you: do you want a secure investment with a high degree of transparency, or are you prepared to take a certain amount of risk in order to benefit from lower costs?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">No matter what you decide, ETFs offer a fantastic way to grow your money over the long term. For more tips and investment strategies, check out our article on ETF investment strategies and find out how to get the most out of your investment. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">FAQ: Frequently asked questions about physical and synthetic ETFs<\/h3>\n\n\n<div class=\"wp-block-uagb-faq uagb-faq__outer-wrap uagb-block-1ad8f044 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-ea292a9d \" 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>1. What is the difference between a physical and a synthetic ETF? <\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>A physical ETF buys the stocks in the index directly. A synthetic ETF uses swaps to achieve the index return. <\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-26c28d0c \" 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>2. Which ETF is safer? <\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Physical ETFs are considered safer because they are not dependent on a swap partner. Synthetic index funds carry a certain counterparty risk. <\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-516b2405 \" 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>3. Why are synthetic ETFs cheaper? <\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Synthetic ETFs are cheaper because they do not have to trade all the stocks in the index.<\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-0e3c38e2 \" 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>4. What costs do I need to consider with ETFs? <\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>In addition to the total expense ratio (TER), you should also consider the spread and tax treatment.<\/p><\/div><\/div><div class=\"wp-block-uagb-faq-child uagb-faq-child__outer-wrap uagb-faq-item uagb-block-c17061de \" 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>5. What is tracking error? <\/strong><\/span><\/div><div class=\"uagb-faq-content\"><p>Tracking error measures how much the return of the ETF deviates from that of the index. Physical index funds often have a higher tracking error.5. What is tracking error? <\/p><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>Are you ready to invest in ETFs but unsure whether to choose a physical or synthetic ETF? This is a valid question, as both types offer advantages and disadvantages. In this comprehensive guide, I will show you all the details you need to make an informed decision. You will learn how both types of ETFs [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":299564,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_uag_custom_page_level_css":"","footnotes":""},"categories":[1031],"tags":[],"class_list":["post-299562","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-etf"],"acf":[],"uagb_featured_image_src":{"full":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail.png",960,540,false],"thumbnail":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail-150x150.png",150,150,true],"medium":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail-300x169.png",300,169,true],"medium_large":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail-768x432.png",768,432,true],"large":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail.png",960,540,false],"1536x1536":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail.png",960,540,false],"2048x2048":["https:\/\/northern.finance\/wp-content\/uploads\/2024\/11\/EN-ETF-physisch-oder-synthetisch-Thumbnail.png",960,540,false]},"uagb_author_info":{"display_name":"Aleks Bleck","author_link":"https:\/\/northern.finance\/en\/author\/aleks\/"},"uagb_comment_info":0,"uagb_excerpt":"Are you ready to invest in ETFs but unsure whether to choose a physical or synthetic ETF? This is a valid question, as both types offer advantages and disadvantages. In this comprehensive guide, I will show you all the details you need to make an informed decision. You will learn how both types of ETFs&hellip;","permalink_manager":null,"_links":{"self":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/299562","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\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/comments?post=299562"}],"version-history":[{"count":12,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/299562\/revisions"}],"predecessor-version":[{"id":311983,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/posts\/299562\/revisions\/311983"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/media\/299564"}],"wp:attachment":[{"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/media?parent=299562"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/categories?post=299562"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/northern.finance\/en\/wp-json\/wp\/v2\/tags?post=299562"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}