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For ETFs managed in synthetic replication, index replication is achieved through the use of a total return swap, i.e. a swap contract in which an investment bank (the counterparty) exchanges the performance of the index for another performance.
In the context of synthetic replication, there are two types of structures:
- "Unfunded" structures, the most common, in which the fund uses its cash (generated for subscriptions to the fund) to buy a basket of securities that it owns and whose performance is exchanged for that of the index in accordance with the provisions of the total return swap;
- "Funded" structures in which the fund transfers its cash to the counterparty, in exchange for the performance of the index, in accordance with the provisions of the total return swap.
Physical replication when using securities lending, in the case of securities lending and borrowing as well as synthetic replication, involve counterparty risk. Counterparty risk reflects the impact on the fund's net asset value of the default of the lending counterparty (in the case of physical replication) or the investment bank counterparty to the total return swap (in the case of synthetic replication). In accordance with the current UCITS* regulation, the fund is required to ensure that the counterparty risk resulting from the use of forward financial instruments will be limited at all times to 10% of the fund's net assets per counterparty.
*UCITS: Undertakings for Collective Investment in Transferable Securities - UCITS V: Directive 2014/91/EU of July 23, 2014.
The family of ETPs – Exchange Traded Products – consists of:
- ETF (Exchange Traded Funds), which are index-linked UCITS (undertakings for collective investment in transferable securities), which include in particular ETF UCITS compliant with the UCITS IV regulations;
- ETN (Exchange Traded Notes) or certificates, which are debt securities listed on a stock exchange, with repayment and maturity conditions known at the time of issue;
- ETC (Exchange Traded Commodities), which are indexed to a single underlying commodity or a basket of commodities.The Amundi ETF range consists exclusively of ETFs.
Also called Inverse ETFs, short ETFs implement a strategy offering an inverse exposure – upwards or downwards – to the daily performance of an index. Thus, in case of a decrease in this market, the net asset value of the ETF will increase and vice-versa. The costs related to the inverse performance strategy (short sale costs) are deducted from the fund’s performance.
The effect of the inverse performance is daily. The performance of the short index over a period of more than one day may therefore differ by -1 times the performance of the index over the same period (see example below).
Leveraged ETFs replicate the performance of a strategy that consists in doubling – upwards or downwards – the daily variation of an index thanks to leverage. Take the example of a CAC 40 leveraged ETF. If the CAC 40 index gains 2% over a day, an investment vehicle like a CAC 40 leverage ETF will gain 4%.
For ETFs, the leverage is daily. The performance of the index with leverage over a period of more than one day may therefore differ by 2 times the performance of the index without leverage over the same period (see example below).
These examples are deliberately simplified and do not take account of the cost of the short sale scaled to one day on the benchmark’s basket (costs measured by the repo variable) in the case of a Short ETF or financing costs for the doubling of the exposure (leverage costs) in the case of a leveraged ETF. These illustrative and theoretical examples do not in any way predict future scenarios and do not guarantee future return
ETFs - THE BASICS
There are several types of indices. The main difference lies in the consideration of the dividends or coupons of the securities comprising the index. These dividends may be included or excluded from the calculation of the index, which affects the value of the index differently.
- “Price Return” indices do not take dividends (in the case of equity ETFs) or coupons (in the case of bond ETFs) paid by the securities comprising the index into account in their methodology.
- “Total Net Return” indices take the dividends or coupons paid by the components of the index into account in their calculation. The amount of dividends/coupons taken into account by index suppliers may be gross or net of taxes:
o In the case of a “Total Net Return” index, the amount taken into account in the index’s methodology is the amount of dividends minus the withholding tax rate (generally the highest rate applicable to a foreign investor);o For a “Total Return” index, the amount taken into account in the index’s methodology is the amount of gross dividends, i.e., without deduction of any tax.
BUYING AND SELLING ETFs
Ongoing charges: This is the only notion relating to fees that is harmonised at the European level. It appears in the KIID of each UCITS.
Ongoing fees correspond to the operating and management costs actually borne by the fund. Ongoing fees are calculated on the figures of the previous financial year (“ex-post” data).
When these figures are not yet available or are no longer relevant, an estimate of these fees is made for the current year.
Ongoing fees mentioned in the KIID as a percentage may vary from one year to another.
Management fees, which appear in the French regulatory documentation of a UCITS under the heading “Operating and management fees”, are the costs directly charged to the fund. They correspond to all expenses incurred for the operation of a UCI such as:
- management fees collected by the management company
- fees related to the depositary, statutory auditor, etc. (for Luxembourg funds, these fees would fall within the category of administrative fees, for example)
- regulatory fees (registration of the fund in other member states) (for Luxembourg funds, these fees would fall within the category of administrative fees, for example)
- index licencing fees, etc.
Certain European UCIs distinguish management fees (collected by the management company) from administrative fees (paid to the depositary, statutory auditor, legal advisers, regulators).
This notion of management fees varies from one country to another or even from one fund to another. The prospectus of each UCI clearly defines it.
The following may be added to the operating and management fees:
- performance fees (remunerating the Management Company when the Fund has exceeded its objectives. They are therefore charged to the Fund): not applicable in the case of Amundi ETF funds
- transaction fees charged to the FundThe TER (Total Expense Ratio) represents the operational fees/costs generated in managing the fund. TER is not a harmonised notion at the European level. Its calculation methodology may be defined by local regulations. When this is not the case, it is defined by the supplier of the data (management company, distributor, etc.).
An ETF (Exchange Traded Fund) is a listed fund that seeks to replicate as closely as possible the performance of an index, whether it rises or falls. It is a simple and liquid investment product that combines the advantages of a traditional index fund with those of equities. Nevertheless, as is the case with any financial instrument, ETFs carry risks.
As synthetically replicated funds in the Amundi ETF range neither lend nor borrow securities, counterparty risk is limited to the value of the swap (market to market). In accordance with the UCITS IV* regulations, this divergence is limited to 10% of the net asset value of each ETF per counterparty.
The counterparties to Amundi ETF products are:
- BNP Paribas for Amundi Equity and Commodity ETFs;- Société Générale CIB for the fixed income ETFs.
*UCITS: Undertakings for Collective Investment in Transferable Securities - UCITS IV: Directive 2009/65/EC of 13 July 2009.
This information is available in the “Fund holdings” section of each ETF's product fact sheet.
* This does not apply to Amundi ETF S&P Euro UCITS ETF, Amundi ETF S&P Europe 350 UCITS ETF and Amundi ETF CAC 40 UCITS ETF.
An ETF may have different unit or share classes with different distribution schemes.
• Capitalisation, which corresponds to “C” units: the distributable amounts (net income, including dividends/coupons and/or realised net capital gains) are fully reinvested.
• Distribution, which corresponds to the “D” units: the distributable amounts are distributed in full.
• Capitalisation and/or partial distribution (mixed units): the management company may decide, during the course of the financial year, to distribute all or some of the distributable amounts through one or more payments per year.The specific terms of allocation of the distributable amounts are described in the KIID and the prospectus of each ETF.
Securities lending is a commonly used technique in fund management (traditional index trackers, physically replicating ETFs, etc.) whereby an asset manager lends investors the securities held in the underlying basket, thus generating additional income for the fund.
This technique enables fund management companies to recover some of the cost of managing an ETF. Synthetically replicated Amundi ETFs do not lend securities.
The guarantee (collateral) policy applied by management companies to transactions as part of temporary acquisitions and disposals of securities is available on their website.
The purpose of the European UCITS IV directive (”Undertakings for the Collective Investment in Transferable Securities”) is to favour the distribution of UCITS funds between European countries and improve the transparency and harmonisation of information provided to investors, notably by introducing the Key Investor Information Document (KIID). The KIID is a summary document harmonised across all European countries. It provides a clear, accessible summary of the key characteristics of a product.
The Amundi ETF team makes the KIID documents and prospectuses for each of its funds available to investors: management method, risks, cost structure, etc.
They are intended for all types of investor, whether professional, institutional or retail clients.
Like any financial investment, ETFs present risks, especially but not limited to:
- the risk that the fund’s management objective will only be partially achieved;
- the risk linked to the volatility of the securities and/or currencies comprising the Fund’s benchmark;
- The values of ETF units are subject to market fluctuations. Therefore, investments may vary both downwards and upwards. The capital initially invested is not guaranteed.
- The capital initially invested is not guaranteed. Consequently, unitholders may lose all or part of their initially invested capital.
- The counterparty risk related to the chosen replication method: synthetic replication funds are exposed to the counterparty risk resulting from the use of financial futures traded over the counter with a credit institution as part of a “Total Return Swap”. The funds are therefore exposed to the risk that this credit institution will not be able to honour its commitments. The failure of the counterparty (or any other issuer) may reduce the net asset value of the fund;
- the counterparty risk related to the chosen synthetic replication method
The Fund’s market price is likely to deviate from its indicative net asset value. The liquidity of the Fund’s units on a listing market may be affected by any suspension that could be due to, particularly but not only:
i) a suspension or termination of the calculation of the benchmark by the supplier of the index,
ii) a suspension of the market(s) of the underlyings of the benchmark,
iii) the impossibility for a considered listing market to obtain or calculate the indicative net asset value of the Fund,
iv) an infraction by a market maker of the rules applicable on a considered listing market,
v) a failure in the systems, particularly IT or electronic systems, of a considered listing market,
vi) any other event that prevents the calculation of the indicative net asset value of the Fund or the trading of units of the Fund.
For equity ETFs
- volatility risk: this is the risk that the fund’s Net Asset Value will be volatile because of the volatility of the securities comprising the Fund’s benchmark;
For bond ETFs
- interest rate risk: the fund may be 100% exposed to interest rate risk, i.e., the risk of a change in the prices of fixed-income instruments arising from changes in interest rates;- credit risk: this is the risk of a decrease in the credit quality or a default of a private issuer;
These risks, detailed in the legal documents of each Amundi ETF fund, are to be taken into account before any investment decision.
A stock market index provides an overview (in value or points) of the value of the securities it comprises. The Indexs are used as benchmarks for changes in markets, business sectors, regions, specific industries, etc
You place your order via your usual financial intermediary or online via an e-broker, quoting the product code (ISIN or mnemonic code), the quantity, the type of the order (buy or sell) and your required trading price.
To buy or sell an ETF, you simply place an order:
- via your usual financial intermediary (bank branch, financial adviser, broker, etc);
-or online, via an e-broker.This order will be executed during trading hours in accordance with the procedures outlined in the KIID and prospectus of the ETF.
The spread is the difference between an ETF's bid and offer price on the order book of a stock exchange. The spread generally varies depending on supply and demand for a particular asset and the volume traded (liquidity).
Amundi has entered into contracts with financial institutions to ensure the liquidity of its ETFs. These institutions are referred to as “market makers” or “liquidity providers”. Their role is to act as a counterparty during trading hours so that investors can buy and sell ETFs.
Amundi ETF staff work closely with approximately 40 market makers selected for their experience in trading ETFs and for the quality of the service they provide.As a result, products in the Amundi ETF range may offer tighter spreads.
Amundi ETF funds are traded on the stock market. Investors can therefore buy or sell units in Amundi ETFs during trading hours.
The TER (Total Expense Ratio) is the sum of annual total management and operating fees billed to a fund relative to its net assets. For Amundi ETF funds (the “Funds”), the TER corresponds to the ongoing fees mentioned in the KIID. The ongoing fees represent the expenses deducted from the fund during the course of a year. They are based on the figures of the previous year (or estimated when the fund has not closed its accounts for the first time).
Amundi, the management company of the Amundi ETF funds, does not directly charge entry or exit fees when you buy or sell ETF units. It charges management fees that are directly deducted from the Net Asset Value of the fund.
In addition, intermediaries (particularly brokers) charge fees related to the transactions on purchases and sales of ETF units, and your account keeper charges custody fees over which Amundi has no influence.
The management fees applied by the Amundi ETF range are, on average, among the lowest in the European market*.* Calculated by Amundi using data as of 31/07/2015 from source: DB ETF Research. The average asset-weighted Total Expense Ratios (TERs) of all Amundi ETF Funds: 0.26%, against global average TERs of other European ETFs (incl. the Funds): 0.32% as per DB ETF Research. Important: some individual Funds may not be cheaper than their European peers or may not have an equivalent European peer group to compare with and vice versa. The TER corresponds to the ongoing charges disclosed in the KIID. Analysis excluding third party commissions/costs incurred directly by investors when trading.
ETFs are listed on the stock market. As is the case with any transferable security, ETFs are identified by an ISIN code (International Securities Identification Number)and a TIDM, which facilitate the identification of a financial instrument on an exchange. Each Amundi ETF therefore has a corresponding unique TIDM and ISIN code.
Some examples :
Amundi ETF TIDM ISIN code
AMUNDI ETF CAC 40 UCITS ETF (C) C40 FR0007080973
AMUNDI ETF MSCI EUROPE UCITS ETF CEU FR0001065569Please note that all ETFs may not be authorised for distribution in your country.
An ETF's liquidity depends on the liquidity of the stocks that make up the benchmark index rather than the volumes traded on the market. Most ETF trading is carried out over the counter (OTC) or via a market maker rather than on the stock exchange. Stock market volumes thus represent only a fraction of the orders processed.
An ETF's liquidity is ensured by the market makers, who provide bid and offer prices during trading hours.Certain securities in the composition of the benchmark may be difficult to trade or momentarily unable to be traded, particularly because of the absence of trades on the market or regulatory restrictions. These market disruptions may reduce the net asset value of the Fund.
You can find the net asset value of all our ETFs on the factsheet for each ETF. You may also subscribe to our daily alerts notifying you on the release of the net asset values of the ETFs you have selected.
Estimating the value of an ETF unit
- The value of the unit of an ETF generally represents a fraction of the value of a given index. For example, the value of AMUNDI ETF CAC 40 is close to 1/100th of the value of the CAC 40 index. Thus, in order to obtain the approximate net asset value of the Amundi ETF CAC 40 fund, keep in mind that one point of the index is equal to €1 and divide the value of the CAC 40 index by 100.
- Example for illustration:
At 18/07/2015, the CAC 40 index is at 3,691.75 points. The net asset value of the AMUNDI ETF CAC 40 fund can therefore be estimated at €36.91.
Determining the exact market trading value of an ETF unit
The Amundi ETF funds can be traded on various stock exchanges and are listed during the opening hours of the markets. In order to determine their exact net asset value, you can, in particular:
- consult the quotations in real time;
- consult the stock exchange information websites;
- call your financial intermediary;- contact us.