New Listing

BlackRock launches second synthetic US equity ETF

Follows the launch of the iShares S&P 500 swap ETF in 2020

Theo Andrew

Brett Pybus BlackRock

BlackRock has launched a second synthetic ETF offering exposure to US equities, ETF Stream can reveal.

The iShares MSCI USA Swap UCITS ETF (MUSA) is listed on Euronext Amsterdam and Euronext Paris with a total expense ratio (TER) of 0.07%.

BlackRock currently offers a physically replicated version of MUSA, the $480m iShares MSCI USA UCITS ETF (CSUS), which has a TER of 0.33%, almost five times the fee of the newly-launches strategy.

Brett Pybus (pictured), head of iShares EMEA Investment and product strategy, said: “The launch of the MUSA expands choice for investors. We see rising demand from certain investors for a swap-based alternative for this exposure where investors can realise a performance pick-up.”

In September 2020, the world’s largest asset manager launched the iShares S&P 500 Swap UCITS ETF (I500) in response to rising client demand for a swap-based structure for US equities.

European ETF issuers were less than happy with BlackRock’s U-turn on synthetic ETFs at the time after the US giant campaigned for three years following the Global Financial Crisis about the dangers of synthetic products.

Following its acquisition of iShares from Barclays in 2009, BlackRock CEO Larry Fink called out European rivals Lyxor and SocGen at a conference in New York for its use in synthetic ETFs.

At the time, BlackRock, which exclusively offered physical ETFs, was trying to swell its market share in Europe by turning investor sentiment against the structure.

However, demand has risen for the product for which there are several performance benefits.

Synthetic ETFs, such as I500, do not pay withholding tax on dividends as the substitute basket of the ETF is restricted to non-dividend paying stocks.

Meanwhile, physical ETFs domiciled in Luxembourg pay 30% withholding tax on US equity dividends while Irish-domiciled ETFs pay 15%.

In July, a further advantage of synthetic ETFs emerged following the launch of the Invesco S&P China A MidCap 500 Swap UCITS ETF (C500) and the Invesco S&P China 300 Swap UCITS ETF (C300).

The two ETFs currently carry swap fees of -8.40% and -2.90%, respectively, which means investors are benefitting from this additional performance, on top of the return of the underlying A-Shares exposure.

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