Hybrid replicating ETFs

Hybrid replicating ETFs (exchange traded funds) track their index with both physical and synthetic ETF components. In the physical ETF component, the individual securities are purchased according to their weighting in the index to be tracked. In the synthetic ETF component, the performance of the individual index values is modelled via so-called total return swaps. These are swaps in which a financial services provider guarantees the performance of the underlying index. Hybrid replication also allows some indices, such as the MSCI All Country World Index (ACWI), to be replicated much more efficiently. Due to tax advantages in US stocks, it is even possible to outperform the benchmark index. A synthetic ETF component can also be advantageous for tracking the Chinese equity market. The A-shares listed on the Shenzhen and Shanghai mainland stock exchanges in particular can often be tracked more favourably synthetically.

In addition to hybrid replicating ETFs, there are also physically and synthetically replicating ETFs.