In this Investment Insights interview, ETF Stream speaks to Ross Finlayson, head of markets and product strategy at Amundi ETF & Indexing and Terry McGivern, senior research analyst of AJ Bell about the key safeguards in place and the future adoption of synthetics.
Finlayson outlines three safeguards: multi swap counterparty models for pricing and diversification; daily collateral resets aiming to keep funds 100% collateralised; and proactive risk management of substitute baskets. “These are fundamental differences to what was potentially the case before the global financial crisis,” he adds.
Looking forward, McGivern says “as ETF adoption grows and the education levels start to improve, we will continue to see synthetic replication come to the fore”. He expects synthetics to grow as investors seek exposure to thematic or harder-to-reach markets, where synthetic structures can offer more efficient access than physical replication.
