CMFAS M9A Structured Products question: Exchange-Traded Fund (ETF)

CMFAS M9AStructured Products

Not every Exchange-Traded Fund (ETF) is a structured fund. Which ETFs qualify as structured funds?

A All ETFs, because every ETF tracks an index and trades on an exchange
B Only ETFs whose fund size is below S$20 million at launch
C ETFs that invest directly in the underlying securities of the index
D Only ETFs using derivatives to replicate the index (synthetic ETFs)

Show the answer and explanation

Answer: D. Only ETFs using derivatives to replicate the index (synthetic ETFs)

Listed structured funds fall under the ETF umbrella, but not all ETFs are structured funds. While most ETFs are tracker funds, some replicate an index by direct investment and others by using derivatives. Only the derivative-using ETFs are structured funds, also known as synthetic ETFs.

Common mistake

A physically-replicating (direct investment) ETF is not a structured fund — the structuring comes from the use of derivatives.

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