What is a structured ETF
Structured ETFs are UCITS i.e. funds or Sicav that may be traded in real time like shares, managed according to techniques aimed at pursuing returns that are not only related to the performance of the reference market, but which may also be aimed at:
- Participating in a more than proportional manner in the performance of an index (leveraged ETF);
- Inversely participating in the movements of the reference market (short ETFs with or without leverage).
The differences between Structured ETFs and ETFs
What structured ETFs and ETFs have in common is the investment policy, which may be defined as “passive” in consideration of the fact that once the mathematical model on the basis of which the assets will be managed is defined, the discretionary power left to the manager is limited. Like for the ETFs, the units may be created and redeemed continuously by authorized participants, and this ensures that the market price is always aligned to the NAV of the fund (then, the risk of buying (selling) a structured ETF with a higher (fewer) price than the NAV is reduced, but this risk can't be excluded) and allows the structured ETF to be as liquid as the referece market.
The advantages of Structured ETFs
The Structured ETFs have the advantage of:
maximizing the performance of each strategy: the structured ETFs enable the investor to join the benefits typical of an investment in ETF (passive strategy) with those of a dynamic management, thanks to a transparent method of allocation of the managed portfolio assets;
- reducing the costs of one’s own portfolio: the structured ETFs allow to access, at a reduced cost, more complex investment strategies than a simply tracking of the benchmark index. They are in fact subject to a reduced total annual commission (TER), applied automatically in proportion to the holding period, whilst the investor is charged no “Entry”, “Exit” and “Performance” fees. The investor must always include among the costs the trading fees applied by his own bank/broker for the purchase and sale on the market;
- getting benefit from periodical proceeds: the dividends or interests that the structured ETF collects may be re-distributed periodically to the investors or permanently capitalized in the assets of the structured ETF. In both cases, the beneficiary is only the investor;
- reducing the issuer’s risk: the structured ETFs listed on ETFplus are, depending on the instrument, Mutual Investment Funds or Sicav (UCITS) and, therefore, are exposed to no insolvency risks.