3Anno·
Opinione per $SC0J
🤷‍♂🤷‍♀️ Neutro

Why the structure of an ETF makes a difference in the long term. I'm picking up a post of mine from the other day, since I think some people here are not yet that deep into the subject.


The MSCI World from Invesco is for me a good product, apart from classic USA Equity Indices, where the topic 871m and synthetic offer a decisive advantage.


There are 3 (probably more) different ways to structure an ETF.


1) physical - i.e. ETF holds all stocks of the index

2) swap based - lower withholding tax rates

3) swap based - net performance + "guaranteed" swap spread.


re 1) physical ETFs on US Equity primarily deliver outperformance through lower withholding tax rates you are subject to than those assumed for the Net Return Index (NTR). Namely, the NTR assumes a 30% withholding tax rate due to withholding tax treaties. I.e. this NTR is the benchmark for the performance here.


By clever choice of domicile, e.g. Ireland, physical ETFs improve to 15% withholding tax and perform the NTR quasi by this 15% withholding tax advantage - costs then out.


2. swap-based ETF with a "gross minus" model


Outperformance is achieved because the swap counterparty has lower withholding tax rates than the NTR (30% withholding tax deduction). However, Invesco's S&P 500 tracks the performance of the gross index i.e. including 100% of dividends and has negotiated a 0% withholding tax rate in Ireland. I.e. the client gets 100% of the dividends - cost (0.05%).


Outperformance to the NTR are then for example.


Dividend yield: 1.50%

Withholding tax improvement: 1.50% x 30% (withholding tax savings) = 0.45%.

subtract costs from this: 0.05% = 0.40% better performance than the NTR.


By the way, Invesco does the same for MSCI USA and on the US exposure in their MSCI World (IE00B60SX394), which is still 60% of the index.

Therefore, Invesco's MSCI World is one of the best performing MSCI World ETFs.


The difference between the physical and the swap model are then with assumed dividend yield of 1.5%.


1.5% x 15% withholding tax = 0.225%.


The outperformance depends on the dividend yield in the index.


3. swap based ETFs can also outperform the NTR by improving the performance via the swap or "negative swap fee". The amount of this "better" performance depends on the withholding tax rate and the financing costs of the swap partner. The swap partner then says e.g.: ETF provider, I will deliver you an outperformance of 20 basis points (=0.20%) to the NTR. Disadvantage: Dependence on the swap partner = intransparent! Providers like Xtrackers, Amundi or Lyxor use this model.


Swappartner says then simply, I deliver to the NTR + 0.15% outperformance over the swap and you get then. But is just not safe and not transparent ...


Hope that helps one or the other further and eyes on when choosing the right MSCI World.


If there are answers here because of swap security etc., there still a sentence to: Invesco drives a physical approach with swap overlay, i.e. the equity ratio of the ETF is somewhere at 96-98%. Whereas with some physical ETFs, securities are lent from 0-70% and there you will only find an equity quota of 50% in the conditions. With the lent securities one does not even know who owns them. Therefore, I would always prefer a better performance with swap structure, if the physical counterpart can not keep up with the performance.

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