According to Marco Montanari in an interview, synthetic ETFs have been obliged – in the wake of the credit crisis – to provide more and more transparency in terms of the collateral held against the counterparty risk, to help diversify this risk.
At Deutsche Bank, Montanari said the firm publishes the collateral on the internet on a daily basis, which is as transparent as it could be.
This is in response to what clients want to ensure transparency and get sufficient comfort to invest in the product, he explained.
Comparing the situation with securities lending
According to Montanari, funds which do securities lending – either ETFs which buy physical assets or mutual funds – also incur counterparty risk.
Yet all the attention has been on synthetic ETFs to date, he said.
However, a fair representation should consider the entire funds industry given its size, especially compared with ETFs, added Montanari.
What investors should look for in synthetic ETFs
According to Montanari, investors in synthetic ETFs should ask for the maximum transparency, check who the counterparty is, and look at what collateral is posted.
In general, he said he doesn’t see clients steering clear of investing in the bank’s product as a result of the structure.
Instead, they just want to get enough information on which to base their buying decisions.
How the ETF market will involve
Montanari said the concerns over synthetic ETFs highlight the lack of education in the market, which is linked to the fact that this is a young but fast-growing market which is generally under the media spotlight.
With time, investors will grow to understand how the product works, he said.
Our website utilises standard technology called "cookies" and web server logs to collect information about how the Hubbis site is used. Cookies are a feature of your web browser software that allows servers to recognise the computer used to access a website. This information is collected on an aggregate basis. None of this information is associated with you as an individual. If you continue to access the Hubbis site, we will assume that you agree to receive cookies. You may choose to disable cookies on your computer, however it is possible that some parts of the Hubbis site may not operate correctly if you do so
The content on this site is the copyright of Hubbis (HK) Limited.
We take all reasonable steps to ensure that the information on this Website is correct. However, we do not guarantee the correctness or completeness of material on this Website. Neither we nor any other party (whether or not involved in producing, maintaining or delivering this Website), shall be liability or responsible for any kind of loss or damage that may result to you or a third party as a result of your or their use of our website.
The information provided is for general information purposes only. It is not, and should not be construed as, financial or other professional advice.
In the material we make available on our site, we rely on a wide variety of sources. We believe these sources of data to be accurate and reliable, but sometimes they may not be. Hubbis.com makes no claims or representations as to the accuracy, completeness, or truth of any material contained on our site. Nor is Hubbis.com liable for any errors or delays in the content or transmission of the data on our site.
© Hubbis (HK) Limited 2015. All Rights Reserved.