This term paper will mainly focus on ETFs tracking equity markets. The low costs, the simplicity of the product and the broad range of different ETFs available are the reasons why the assets under management (AUM) in the ETF industry grew by 20%2 p.a. in the last 15 years, with a continuing upward trend.
This term paper is divided into two parts. The first part will start with explaining some basic characteristics of ETFs. Thereafter, different structures behind ETFs are described and factors influencing the tracking difference are analysed. In the second part of the term paper, two ETFs are compared. While one of them uses the physical replication method and the other the synthetical replication method, both of them cover the MSCI World Index. The ETFs are compared with regard to some basic information about them, but mainly concerning the tracking difference occurring from the different replication methods and other factors influencing the performance of the funds.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Structuring ETFs
- ETFs as a product to track the performance of an index
- Structures fund companies use to build ETFs
- Factors influencing the tracking difference
- Comparison of two ETFs tracking the MSCI World Index
- MSCI World Index
- iShares Core MSCI World UCITS ETF
- Xtrackers MSCI World Swap UCITS ETF 1C
- Comparison
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This term paper aims to provide an in-depth analysis of exchange-traded funds (ETFs), specifically focusing on their structure, factors influencing their performance, and a comparison of two ETFs tracking the MSCI World Index. The paper examines the advantages and disadvantages of different ETF structures, explores the concept of tracking difference, and highlights the cost-efficiency of ETFs compared to actively managed funds.
- The nature and characteristics of ETFs as a financial product
- Different structures employed by fund companies to build ETFs
- Factors influencing the tracking difference between an ETF and its underlying index
- Comparative analysis of two ETFs tracking the MSCI World Index using different replication methods
- The cost-efficiency of ETFs and their advantages over actively managed funds
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter provides an overview of ETFs, emphasizing their growing popularity, cost-efficiency, and broad diversification possibilities. It introduces the structure of the paper, outlining its focus on ETF structures, tracking difference, and a comparative analysis of two ETFs tracking the MSCI World Index.
- Structuring ETFs: This chapter delves into the core concept of ETFs as a product designed to track the performance of an index. It explores various structures used in ETF construction, including physical replication, sampling replication, and synthetic replication, along with their respective advantages and risks. Additionally, it examines factors influencing the tracking difference between an ETF and its underlying index.
- Comparison of two ETFs tracking the MSCI World Index: This chapter focuses on a detailed comparison of two ETFs tracking the MSCI World Index. One ETF utilizes the physical replication method, while the other employs the synthetic replication method. The chapter compares key information about the ETFs, particularly their tracking difference resulting from different replication methods and other performance-influencing factors.
Schlüsselwörter (Keywords)
The key focus of this term paper is on exchange-traded funds (ETFs), their structure, and the factors influencing their performance. Key terms and concepts include tracking difference, passive management, index tracking, physical replication, synthetic replication, cost efficiency, MSCI World Index, and diversification.
- Quote paper
- Philipp Rothe (Author), 2021, How do Exchange Traded Funds (ETFs) work? A comparison of two ETFs tracking the MSCI World Index, Munich, GRIN Verlag, https://www.grin.com/document/1234776
