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Kind of Funds at SIX Swiss Exchange


Definition Passive ETFs are funds that are traded on an exchange. Unlike actively managed investment funds and ETFs, passive ETFs track the prices and returns of underlying indices. The underlying asset that the passive ETF is based on is comprised of one or more equity, bond or commodities indices from one or more countries. The index is based on a rule book, which defines the index and the portfolio adjustments. In other words, ETFs are just as flexible and liquid an investment vehicle as equities.
Investment strategy Passive ETFs give investors the opportunity to track an index without buying the individual instruments included in it. This allows investors to diversify their portfolio with a single transaction. The composition of an ETF is continuously adjusted to the underlying index and is therefore transparent at all times.
Trading and market making Both active and passive ETFs are traded at SIX Swiss Exchange during the relevant trading hours. Market makers are required to quote prices for both categories of ETFs on an ongoing basis and thereby ensure a liquid and regulated market.
Market makers quote bid and ask prices to ensure liquidity in ETFs. The Exchange regularly uses the indicative net asset values of an ETF, which are calculated on an ongoing basis, to monitor compliance with the market-making rules. The benefit for investors is that they can always buy and sell fund units at prices that are in line with the market.
Commission and exchange fees Buying and selling active and passive ETFs is subject to bank-specific commission and exchange fees. However, neither category of ETF is subject to the issuing and redemption commissions that usually apply to investment funds.
Management fees The fund management company (the issuer of the ETF) charges a management fee for administrative tasks relating to the management of the ETF. This fee varies depending on the underlying index and the issuer. For passive ETFs, it is usually between 0.3% and 1% of the ETF's assets per year. The fee amount and its calculation method are described in the ETF's prospectus. For example, if the management fee is 0.5% p.a. and is charged to the fund assets on a weekly basis, the price of the passive ETF drops by 0.0096% a week.
Risk concentration As a rule, specialised equity, bond and speciality funds have a more pronounced risk-return profile than funds that are widely diversified. This may result in better performance, but it also entails a greater degree of risk and volatility.
The investment risk increases with the specialisation of the fund:
  • Regional and country-specific funds are riskier because they are dependent on the development of a specific market and diversification across other markets and countries is ruled out.
  • Sector funds such as commodity, energy and technology funds involve a risk level that should not be underestimated, because wide risk diversification across other sectors is precluded.
  • Passive ETFs may track the value of a single underlying asset such as gold or platinum or another commodity. This can increase the potential earnings, but it also increases the risk.
  • Active ETFs depend considerably on the assessments of the fund manager as well as the market risk of the additional securities bought.