Investors CHRONICLE Fund Awards 2012
Best ETP for UK equity exposure: db x-trackers FTSE 100 ETF
Our shortlisted candidates are all good products filling different investor needs, but we felt db x-trackers FTSE 100 ETF was the clear winner for its low cost and minimal tracking error. The exchange-traded fund (ETF) uses swap replication rather than physical replication, under which rival ETFs hold all the shares in the index.
Instead of holding the securities in the underlying index, a swap-based ETF holds a basket of securities as collateral to provide some safety for shareholders, and exchanges the performance of these securities with an investment bank counterparty for the performance of the reference index.
This synthetic replication has resulted in a close tracking error for db x-trackers FTSE 100 ETF, comparing favourably with rival FTSE 100 trackers. Its total expense ratio at 0.30 per cent is also among the cheapest.
The risk of a counterparty failing to make good on its swap contracts due to financial distress has become a real concern in the past couple of years. However, db x-trackers FTSE 100 ETF’s parent company, Deutsche Bank, has credit ratings at the higher end of the spectrum. The fund is overcollateralised, so could cover its assets if Deutsche Bank did default. Xtrackers publishes what this collateral is on its website on a daily basis.
Our shortlisted candidates are all good products filling different investor needs, but we felt db x-trackers FTSE 100 ETF was the clear winner for its low cost and minimal tracking error. The exchange-traded fund (ETF) uses swap replication rather than physical replication, under which rival ETFs hold all the shares in the index.
Instead of holding the securities in the underlying index, a swap-based ETF holds a basket of securities as collateral to provide some safety for shareholders, and exchanges the performance of these securities with an investment bank counterparty for the performance of the reference index.
This synthetic replication has resulted in a close tracking error for db x-trackers FTSE 100 ETF, comparing favourably with rival FTSE 100 trackers. Its total expense ratio at 0.30 per cent is also among the cheapest.
The risk of a counterparty failing to make good on its swap contracts due to financial distress has become a real concern in the past couple of years. However, db x-trackers FTSE 100 ETF’s parent company, Deutsche Bank, has credit ratings at the higher end of the spectrum. The fund is overcollateralised, so could cover its assets if Deutsche Bank did default. Xtrackers publishes what this collateral is on its website on a daily basis.
