Physical or synthetic? BlackRock: “Why not both?”

General
1

This is intriguing:

Quick comparison:

CSP1 I500
Product structure Physical Synthetic
Methodology Physical replication Swap
Current NAV ≈ £300 ≈ £5
Securities lending Yes No
Tracking error Up to 0.10% Up to 0.05%
Trailing returns (1M) -0.27% -0.26%
Trailing returns (3M) 8.89% 8.95%
Trailing returns (1Y) -14.94% -14.74%

(Trailing returns as of 20 Jan 2023 are from Yahoo Finance. Each site seems to report slightly different figures.)

In this ETF Stream article at the time of I500’s launch, BlackRock’s reason for launching an S&P 500 swap ETF while they already had a physical ETF on offer was “investor choice” and “performance pick-up”.

The performance pick-up seems small to date, though I500 has only been around for 2 years.

A fun interview question for prospective InvestEngine recruits might be: “How would you advise a client choosing between CSP1 and I500?” (Trick question! The correct answer is probably, “Do not give investment advice to clients.” :grimacing:)

But seriously though, how would you choose between the two?

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2

Bit of a guess but is there a tax advantage to buying synthetic?

3

Tax advantages vary, depending on the underlying assets and the ETF’s domicile (as explained here – you may need to declare yourself a “financial professional” for the page to show).

In any case, the tax advantage plus other purported advantages of synthetic ETFs will have been reflected in the NAV, so if they do make a big difference, given enough time the superior performance should have been self-evident.

4

Thanks for posting that link. It’s a really useful, enlightening article.

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