Diversified Smartfolios

Cost avoidance is one of the most important criteria for long-term investment success. We pay particular attention to key figures such as the Total Expense Ratio (TER) and the Ongoing Charges Figure (OCF). Both measure the total cost of tracking an index.

ETFs with low trading liquidity generally have wider bid-ask spreads, increasing trading costs. We focus on ETFs with large investment volumes and several market makers to ensure the best possible liquidity and minimize trading costs.

The tracking error indicates the accuracy with which the ETF tracks its benchmark index. We select ETFs with minimal deviation from the performance of the underlying index. This guideline ensures that our Smartfolios accurately capture the performance of each index.

ETFs usually track broad market indices, which often include hundreds or thousands of individual securities. This broad diversification allows access to the fundamental drivers of each asset class without taking high specific risks. However, very broad-based indices also contain a so-called long-tail: several smaller companies with lower liquidity and higher trading costs. Our selection process ensures a balanced and favorable ratio between risk diversification and implicit trading costs.

There are two types of replication of the underlying index for Exchange-Traded Funds: physical and synthetic. Physical replication means the index buys the individual index components (for example, the S&P 500 ETF has the 500 S&P stocks). Synthetic replication This approach guarantees the performance of the desired index. So an ETF replicated on a swap basis does not just include the underlying components risk but also counterparty risk. Whenever we can, we prefer physical replication ETFs. Sometimes, due to unavailability, we could use synthetic replication ETFs to access certain asset classes.