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0 pointsriffraff11d ago0 comments

Index funds have a variety of ways to replicate the index beyond physical replication, including options, buying "similar things", sampling etc..

So yeah, they don't really need to stick to 100% of the presented issue.

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Galanwe11d ago

Index funds and ETFs also have strict replication rules limiting the amount of non-physical replication in their legally binding prospectus...

The more physical a tracker is, the lower the tracking error, but also the more fees you have to pay. "Good" ETFs/IFs are often 98% physical. This makes for higher fees, but more safety for subscribers in case of large swings.

So it's not like they are _free_ to replicate however they see fit, the replication mechanism is part of the product.

hhh11d ago

What does physical mean in this context?

names_are_hard11d ago

It means holding the actual stocks in the underlying index, as opposed to synthetic replication, which aims to achieve returns matching the index via derivatives or other techniques.

It's physical in the sense that literal means not literal nowadays.

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