OEIC or ETF for S&P500?

aroominyork

masonic wrote: »

It does seem strange for an S&P500 tracker not to fully replicate. With only 500 companies to buy, it isn't particularly costly or challenging to buy them all.

It was IGUS you suggested was not fully replicating the index wasn't it? This page suggests IGUS does fully replicate (scroll down to 'Key Facts', Methodology: Replicated).

I got the info from justetf.com.

masonic

aroominyork wrote: »

I got the info from justetf.com.

Looks like that site isn't very reliable. Again, according to the provider the number of holdings is 505 as of 23rd August, so it definitely isn't sampling.

aroominyork

masonic wrote: »

Looks like that site isn't very reliable. Again, according to the provider the number of holdings is 505 as of 23rd August, so it definitely isn't sampling.

Yet I have just linked through to the KIID from justetf.com and it says “The Fund uses optimising techniques to achieve a similar return to its Index. These may include the strategic selection of certain securities that make up the Index and also the use of financial derivative instruments (FDIs) (i.e. investments the prices of which are based on, one or more underlying assets). FDIs (including FX forward contracts) may be used for direct investment purposes.” Confusing.

masonic

aroominyork wrote: »

Yet I have just linked through to the KIID from justetf.com and it says “The Fund uses optimising techniques to achieve a similar return to its Index. These may include the strategic selection of certain securities that make up the Index and also the use of financial derivative instruments (FDIs) (i.e. investments the prices of which are based on, one or more underlying assets). FDIs (including FX forward contracts) may be used for direct investment purposes.” Confusing.

The same KIID states "The Fund aims to invest in equity securities (e.g. shares) that, so far as possible and practicable, make up the S&P 500, as well as FX forward contracts that, so far as possible and practicable, track the hedging methodology of the Index."

So the corollary is that it only uses strategic selection when it is not possible or practicable to hold some of the securities. Which presumably would be the case for all fully replicating ETFs.

aroominyork

OK, thanks. Looks like there is no material difference between the two. I’ll just bear in mind Dustson’s advice to stick to physical rather than synthetic replication.

Glen_Clark

masonic wrote: »

It does seem strange for an S&P500 tracker not to fully replicate. With only 500 companies to buy, it isn't particularly costly or challenging to buy them all.

ETF providers don't actually buy any - thats how they avoid stamp duty.
ETF providers put out a wish list of what shares they would like to replicate the index, and brokers exchange what shares they have got for ETF units - providing they are reasonably near enough to track the index..

aroominyork

Glen_Clark wrote: »

ETF providers don't actually buy any - thats how they avoid stamp duty.
ETF providers put out a wish list of what shares they would like to replicate the index, and brokers exchange what shares they have got for ETF units - providing they are reasonably near enough to track the index..

Glen, aren't you describing synthetic replication: "Synthetic ETFs use derivatives such as swaps to track the underlying index. The ETF provider enters into a deal with a counterparty (usually a bank) and the counterparty promises that the swap will return the value of the respective benchmark the ETF is tracking."

Audaxer

Economic wrote: »

FSCS protection is like a comfort blanket for some investors, but grown-up investors do not worry about it.

No need to be so patronising - I was just pointing one of the differences between ETFs and OEICs as that was what the OP asked about. If you want to place a substantial amount of investments into something that is not covered by FSCS that's up to you, but some other experienced investors might think differently.

coyrls

Economic wrote: »

The question was about sampling. Learn to read!

I was referring to this (I didn't say "question", I said "point"):

replace a little risk with a lot of risk. Generally, you are best avoiding synthetic replication totally.

bowlhead99

aroominyork wrote: »

Glen, aren't you describing synthetic replication: "Synthetic ETFs use derivatives such as swaps to track the underlying index. The ETF provider enters into a deal with a counterparty (usually a bank) and the counterparty promises that the swap will return the value of the respective benchmark the ETF is tracking."

No, you are describing synthetic replication - using total return swaps or the like - while Glen is describing the means by which ETFs can grow in size (by creating units in exchange for actual shares issued by the index constituents (actual physical shares as distinct from swaps issued by a counterparty)).