With a synthetic replication, you may face potential issue that you do not have with physical replication, counterparty risk is the biggest one.
Looking at the documentation of this fund:
https://etf.invesco.com/ch/institutional/fr/product/invesco-sp-500-ucits-etf-dist/security-information
https://etf.invesco.com/sites/default/files/documents/INVESCO_MARKETS_CH_EN_PROSPECTUS_1.pdf
In order to reduce the tracking difference, the return on the index provided for the purposes of
calculating the Swap may reflect a lower rate of withholding tax than ordinarily applied within the
Reference Index.
- Split between counterparties
Example VTI Vanguard
Dividends within the ETF: 100
Distribution paid to the investor: 100
US tax: 15
Net paid to investor: 85
Tax to be reclaimed in your DA-1: 15
Total dividends: 100
Investor taxed at 25% on his income in Switzerland.
100 * 25% = 25, but DA-1 amounting to 15. Remaining taxes due = 10.
Net in pocket = 100 -15 - 10 = 75
Payment from the swap: 85 (remember that the payment formula includes US tax but the exact amount is unknown)
Distribution paid to the investor: 85
IE tax (ETF based in IE): not applicable
Net paid to investor: : 85
Tax to be reclaimed in your DA-1: not applicable
Total dividends: 85
Investor taxed at 25% on his income in Switzerland.
85 * 25% = 21.25
Net in pocket = 85 - 21.25 = 63.75
Page 227
With respect to Class B Shares only and at the discretion of the Board of Directors, the Fund aims to pay quarterly dividends calculated by reference to the embedded reinvested dividends within the
Reference Index during the relevant dividend period less taxes or other withholding. The Reference
Index seeks to track the price performance of the companies contained within the Reference Index
and distributions made by those companies. There is no guarantee that any dividend will be paid. It
should be noted that the payment of any dividend will be calculated in a manner such that the
declared dividend will never be more than the excess performance of the total return performance of
the Fund as calculated by reference to the price return performance of the Reference Index, over the
relevant calculation period.
At the end, I agree that this ETF beats its benchmark. Due to the payment formula of the swaps ? probably.
I don’t feel comfortable with synthetic replication. It is a black box.