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UBS ETFS
Exchange Traded Funds covering key markets and asset classes
OUR EXPERTISE
Partner with one of the world’s fastest growing ETF managers with the expertise
to deliver a wide range of solutions to meet your needs, and experience earned
from over 30 years of excellence.
WHAT SETS US APART
CHOICE
In just one transaction, investors can access numerous markets through our broad
selection of ETFs. We offer solutions across equities, fixed income,
commodities, alternative beta, currency hedging, precious metals,
sustainability, and real estate.
EXPERTISE
You can benefit from our status as one of the most experienced European ETF
providers. We offer high quality index replication strategies, supported by a
seasoned and skilled portfolio management team.
SUSTAINABLE INVESTING
Our sustainable journey started in 2011 with the launch of our first four SRI
ETFs. As one of the pioneers in this space, we offer a wide range of solutions
to help you meet your ESG objectives.
ETF Sustainability Brochure
LATEST INSIGHTS
View all insights
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UBS ETF CAPITAL MARKETS WEEKLY
Have a look at our ETF Capital Markets Weekly. The document highlights primary
market activities relevant for UBS ETFs, the largest secondary market trades, a
market review as well as a look at the week ahead. Enjoy reading and share your
comments.
Latest Market Commentary
ETF TRADING
UBS ETF CAPITAL MARKETS
The ETF Capital Markets team assists clients on their journey of understanding
ETF trading and that competition is key to best execution. A poor ETF execution
can be costly and negate the benefits of the ETF wrapper in terms of
transparency, liquidity and certainty of execution.
Explore ETF trading
Past performance is no guarantee of future results. The current performance of
the fund may be lower or higher than the figures shown. The fund’s returns and
share price will fluctuate, and redemption value may be more or less than
original cost. Performance information current to the most recent month-end is
available at http://ubs.com/funds.
UBS ASSET MANAGEMENT (US) INC.
Risks
* Potential loss: Diversification is no guarantee against loss. Investors may
lose part or all of their invested amount.
* Market risk: Market conditions can trigger fluctuations in total returns.
* Liquidity risk: Some investments may entail liquidity risk.
* Foreign currency risk: The ETF’s total return can be adversely affected by
exchange rate fluctuations.
The UBS ETFs team seeks to remain at the cutting edge and to remain pro-active
in bringing new passive solutions that fit the wide variety of modern investor
preferences.
Clemens Reuter, Global Head of ETF & Index Fund Client Coverage
ETFS FAQS
EXPLORE COMMON QUESTIONS
Expand all
What is an ETF?
An exchange traded fund (ETF) is an investment fund that tracks the performance
of its underlying index and can be bought and sold on the stock exchange. Like a
traditional fund, an ETF is a mutual fund and thus unaffected by any insolvency
of the ETF provider. It allows the benefits of a collective investment fund yet
trades like a share.
ETF trading can be done on the stock exchange or over the counter at any time of
the day. As ETFs are pegged to an underlying index, they are passive investment
vehicles that merely replicate the performance of their underlying asset. In
other words, when the underlying index increases in value, the value of the ETF
increases likewise.
The first ETFs were listed in the US in 1993 and Europe from 1999. Since then, a
steadily increasing number have become available. Traditionally, ETFs are
passive index funds but actively managed ETFs have also come into play since
their authorization in 2008 and require a portfolio management strategy.
What types of ETFs does UBS offer?
UBS ETFs are available on a wide range of underlying asset classes such as
equities, bonds, commodities, precious metals and real estate and offer
investors access to numerous markets with just one transaction. Investors can
also choose the replication method they prefer as UBS offers a wide spectrum of
physically and synthetically replicated ETFs.
What are the key characteristics of ETFs?
Diversification
ETFs provide you with the opportunity to diversify your portfolio in a very
inexpensive and efficient manner by distributing risk across multiple risk
carriers, allowing you to penitentially optimize the risk profile of your
investment. Because ETFs track an index, you can cover an entire market with
just a single transaction.
Flexibility
ETFs are easy to buy and sell - including on an intraday basis. Investors are
able to act on market views within seconds. Due to these characteristics, ETFs
can be used as part of an investment strategy in a variety of ways: for
long-term growth, for short-term trading opportunities and for hedging part of a
portfolio.
Transparency
ETFs are particularly transparent investment instruments because they match the
performance of the underlying index, net of fees. All key trading and other
information can be viewed on an intraday basis or in real time. UBS ETFs
calculate the indicative net asset value every 15 seconds during normal trading
hours.
Cost efficiency
ETFs do not incur any issue or redemption surcharges - just the transaction
costs of buying and selling an ETF. Moreover, only a minimal management fee is
charged.
Security
Like traditional funds, ETFs are mutual funds. They are unaffected by any
insolvency of the ETF provider or custodian bank as the fund's assets are not
included in the bankruptcy estate.
How is an index incorporated into a portfolio?
The objective of an exchange traded fund (ETF) is to track as closely as
possible the index on which the ETF is based in order to provide investors in
the ETF the same performance relative to the market underlying the index.
Indices are based on theoretical calculations, however, which means that costs
incurred in practice, for example, for the purchase or sale of securities
represented in the index are not reflected in the index calculation.
Nevertheless, these costs are charged whenever an index and its performance are
replicated for an investment.
How closely an ETF tracks the performance of its underlying index is therefore
critical. Ideally, the performance of the ETF differs from that of the index
solely in the costs and fees incurred. Since for example indices tracking only
the stock market of a single country apply different criteria for index
replication compared to an index containing stocks from multiple countries, the
criteria for an exact index replication differ from index to index. For these
reasons, UBS ETFs utilize a variety of index replication methods.
FULL PHYSICAL REPLICATION
The ETF invests in the securities represented in the index in accordance with
their index weighting.
OPTIMIZED PHYSICAL REPLICATION
The ETF invests only in those securities represented in the index that are
needed to achieve a performance very close to that of the index.
SYNTHETIC REPLICATION
The ETF invests in a securities portfolio and exchanges its performance for that
of the index.
How does the purchasing process for replication methods work?
The purchasing process is in principle identical for all replication methods -
however, physical delivery of the securities applies only to physically
replicated ETFs.
1. The investor purchases ETF units on the stock exchange or directly from a
market maker or authorized partner (OTC trading)
2. The market maker or authorized partner either pays cash (for physically and
synthetically replicated ETFs) or delivers the requisite securities (only
for physically replicated ETFs) to the ETF
What are the specifics of a physical replication of an index?
In the case of full physical index replication, the ETF acquires all securities
represented in the underlying index in accordance with their index weightings.
Hence, the ETF is in physical possession of the index components and thus an
exact replica of the index. If any changes are made to the index, for example
through index adjustments or capital actions of the represented securities, the
ETF replicates these changes, making transactions necessary on a regular basis.
The ETF regularly distributes income, in the form of dividends or coupons for
example.
THE FULL PHYSICAL REPLICATION METHOD IS CHARACTERIZED BY SIMPLICITY AND MINIMAL
TRACKING ERROR.
1. The ETF is in physical possession of all securities represented in the index
in accordance with their index weighting
2. All index adjustments and capital actions are identically replicated
3. Some ETFs lend out securities from their portfolio for a fee
Securities lending
A number of select physically replicated ETFs engage in securities lending in
order to penitentially generate additional returns and reduce investors' net
costs, whereby the ETF's securities are lent out for a fee. Securities lending
transactions of UBS ETFs are over collateralized to a minimum of 105%.
What's the optimized physical replication method?
In the case of optimized physical replication, the ETF holds a sample of the
securities in the underlying index. It seeks to achieve a return similar to that
of the original stocks represented in the index by implementing analytical tools
and mathematical optimization procedures to define a subset of the index
constituents. The optimized physical replication method can be utilized to
increase liquidity and minimize tracking error.
The optimized physical replication method is particularly suitable for very
broad-based indices. For example, the MSCI World Index comprises approximately
1,600 stocks from a variety of markets, jurisdictions and currency zones.
Accordingly, full physical replication of the index would involve high
transaction costs. A number of these securities are not very liquid or have only
minimal impact on the performance of the Index due to their low weighting.
Transaction costs can be reduced by excluding these securities
1. The ETF is in physical possession of a subset of the index components, which
is used either for very broad-based indices or for indices with illiquid
securities
2. Optimization procedures are implemented in order to lower transaction costs,
increase liquidity and minimize tracking error
3. Some ETFs lend out securities from their portfolio for a fee
Securities lending
A number of select physically replicated ETFs engage in securities lending in
order to generate additional returns and reduce investors' net costs, whereby
the ETF's securities are lent out for a fee. Securities lending transactions of
UBS ETFs are over collateralized to a minimum of 105%.
How is ETF share price determined?
Several factors contribute to pricing ETFs and affect individual ETF costs. The
total cost of owning an ETF depends largely on your chosen portfolio strategy as
well as the asset class the fund invests in. ETF fees tend to be lover than
traditional mutual funds however they do have a wide variety of different
pricing terms. ETF spreads also vary in relation to ETF activity.
What is tracking difference of ETFs?
The tracking difference is the difference between fund performance and index
performance. The fund performance represents all costs relevant to the fund and
all income flows into the fund. Both the ETF total expense ratio and the
tracking difference are published in the fund's semi-annual and annual report.
What is the total expense ratio (TER)?
The total expense ratio is the ratio between total costs and the average fund
size during a fiscal year. Costs are defined as all expenses in the income
statement, including management, administration, custody, auditing, legal and
advisory fees (operating expenses). The ETF total expense ratio is expressed
retroactively as a percentage of the average fund assets and is calculated in
accordance with the guidelines on the calculation and disclosure of the TER of
collective investment schemes.
What is Synthetic index replication?
In the case of synthetic index replication, the performance of the index
underlying the ETF is achieved through a swap. The ETF enters into a swap
agreement with an investment bank, the swap counterparty. The content of this
agreement is the transfer of the ETF's cash flows to the swap counterparty,
which in return guarantees the performance of the tracked index to the ETF. The
risk associated with precise index tracking is transferred from the ETF to the
swap counterparty. As physical ownership of the securities represented in the
index is no longer a prerequisite for participation in the index performance, it
is possible to efficiently track markets that for example are impossible or
difficult to access due to trading restrictions.
UBS employs two different swap structures in synthetic replication: the fully
funded swap and a combined model (total return swap and asset portfolio with
fully funded swap).
COMBINED MODEL: ASSET PORTFOLIO AND TOTAL RETURN SWAP PLUS FULLY FUNDED SWAP (AP
& TRS + FFS)
In this replication method, the subscriptions into the ETF are invested in a
ratio of approximately 95:5 in a portfolio of assets (the "asset portfolio") and
a fully funded swap.
ASSET PORTFOLIO AND TOTAL RETURN SWAP (AP & TRS)
Roughly 95% of the fund assets are used by the ETF to purchase a basket of
securities, the asset portfolio. The basket consists of a diversified and liquid
portfolio of developed market equities and is optimized on the basis of
liquidity considerations. The ETF also enters into an unfunded swap agreement
with the swap counterparty to exchange the returns of this portfolio for the
desired index performance. The swap counterparty generates this performance by
investing in securities and derivatives that replicate the index performance.
FULLY FUNDED SWAP (FFS)
The remaining fund assets (roughly 5%) are used by the ETF to enter into a fully
funded swap agreement with the swap counterparty under which the swap
counterparty agrees to deliver the index performance.
EXPOSURE TO THE SWAP COUNTERPARTY
In order to protect the ETF against the risk of the swap counterparty defaulting
on its obligations, the swap counterparty transfers collateral to the ETF in the
form of G10 government bonds, supranational bonds and cash. The amount of
collateral transferred is subject to haircuts and collateral assets are held at
an external custodian bank in the name of the ETF (transfer of ownership). The
ETF has immediate access to the collateral in the event that the swap
counterparty defaults on its obligations.
1. The ETF purchases a basket of securities with approx. 95% of its cash.
2. The ETF pledges the performance of the basket to the swap counterparty.
3. The swap counterparty pledges the exact index performance (less a fee drag)
in return.
4. The ETF enters into a fully funded swap with the swap counterparty for
approx. 5% of its cash.
5. The swap counterparty owes the exact index performance (less a fee drag).
6. The swap counterparty transfers collateral to the ETF in the form of G10
government bonds, supranational bonds and cash. The amount of collateral
transferred is subject to haircuts.
FULLY FUNDED SWAP MODEL
In this replication method, the ETF transfers cash to the swap counterparty and
in return receives the index performance via a swap contract. In order to help
to protect the ETF against the risk of the swap counterparty defaulting on its
obligations, the swap counterparty transfers collateral to the ETF in the form
of G10 government bonds, supranational bonds and cash. The amount of collateral
transferred is subject to haircuts and the collateral assets are held in a
segregated account at an external custodian bank in the name of the ETF
(transfer of ownership). The ETF has immediate access to the collateral in the
event that the swap counterparty defaults on its obligations.
1. The ETF enters into a fully funded swap with the swap counterparty.
2. The swap counterparty owes the exact index performance (less a fee drag).
3. The swap counterparty transfers collateral to the ETF in the form of G10
government bonds, supranational bonds and cash. The amount of collateral
transferred is subject to haircuts.
Do UBS ETFs use multiple swap counterparties and how can investors be assured
that the swap pricing agreement is competitive?
For all synthetic UBS ETFs, the UBS Investment Bank is the exclusive
counterparty for all OTC swap transactions. However, UBS ETF monitors the
creditworthiness of the counterparty on a regular basis. The monitoring is
performed by the directors of the board in the quarterly meetings. If the market
circumstances require it, the review can even take place at an ad-hoc basis.
Although UBS Investment Bank is the only counterparty to UBS ETFs' swap
agreements, pricing is tested via a range of external panel banks on at least an
annual basis. If a panel bank offers more favorable terms, then UBS Investment
Bank has the ability to enter into a back-to-back swap agreement with the panel
bank in order to achieve competitive pricing for the ETFs. Where permitted and
operationally possible, we use multiple FX counterparties to facilitate our FX
execution.
What is ETF securities lending?
In ETF securities lending, the lender (UBS ETFs) transfers a certain number of
securities from the ETF portfolio to a third party (borrower) for an agreed
period in return for a fee.
* UBS ETFs engage in securities lending only for select physically replicated
ETFs domiciled in Switzerland, Ireland, and Luxembourg.
* The objective is to reduce investors' net costs through additional income.
* Securities lending transactions of UBS ETFs are over collateralized to a
minimum of 105%.
* A haircut is additionally applied to Swiss-domiciled ETFs.
* Careful selection of borrowers and daily mark-to-market valuation of
collateral serve to minimize risk.
* High degree of transparency through daily publication of collateral assets
for each subfund.
Do UBS ETFs participate in securities lending?
Yes, some UBS physically replicated ETFs domiciled in Luxembourg, Ireland and
Switzerland participate in securities lending. However, for Fixed Income,
ESG/SRI and precious metal UBS ETFs the fund management company does not carry
out any lending transactions.
Why do UBS ETFs participate in securities lending?
Securities leading by the fund seeks to generate additional revenues (typically
1-20 bp, depending on the index). Securities-lending revenues are reflected in
the NAV, directly reducing the net cost to investors.
How can ETF securities lending help to potentially generate additional return?
The borrower pays the ETF a fee for the duration of the securities lending
period. In addition, all entitlements such as coupons or dividends paid on the
securities while on loan are passed on to the ETF in the form of a manufactured
payment. As such, securities lending enables the fund to potentiality generate
additional revenues, which are reflected in the net asset value (NAV) and
directly reduce net costs to investors as a result.
How can you seek to minimize securities lending risk for ETFs?
According to the European fund UCITS directive and the Swiss CISA, securities
lending may be up to 100%. Actual lending rates for UBS ETFs have been
considerably lower. UBS ETFs have set a cap of 50% of the net asset value of an
ETF on securities lending, while some are capped at 25% in order to meet market
requirements.
To seek minimize securities lending risk for UBS ETFs, borrowers are carefully
selected and monitored on a daily basis. Before borrowers receive the
securities, they must provide the lender - the ETF - with collateral. The
collateral assets serve to secure the borrower's obligations to the lender. The
collateral is transferred to a completely separate custody account or collateral
account that is ring-fenced from the lender's balance sheet.
Securities lending may be terminated on demand by the lender on a daily basis. A
daily mark-to-market valuation of loans and collateral ensures that the value of
the collateral posted by the borrower is always adjusted to the correct level.
In addition, securities lending transactions of UBS ETFs are always over
collateralized to a minimum of 105%. For Swiss-domiciled ETFs, a valuation
haircut is additionally applied to the underlying collateral. Securities lending
ceases when it is terminated by the ETF or the borrower's demand is satisfied.
The collateral held is returned to the borrower only after the securities have
been returned to the ETF.
Who is the securities lending agent for UBS ETFs?
The securities lending agent for Luxembourg-domiciled ETFs is State Street Bank
International GmbH, Munich, Germany, and State Street Bank and Trust Company.
For Swiss UBS ETFs, UBS Switzerland AG acts as the sole borrower (principal) to
the lending program.
Who are the securities lending borrowing counterparties for Luxembourg-domiciled
UBS ETFs?
State Street acts as lending agent. The borrower list of the lending agent is
approved by UBS representatives. In addition, it matches with the UBS
counterparty list. The counterparty risk is monitored on a daily basis by the
lending agent, State Street. State Street also provides default indemnification
in the event that a borrower is unable to return securities. Securities lending
transactions of UBS ETFs are fully collateralized.
Who are the securities lending borrowing counterparties for Swiss-domiciled UBS
ETFs?
UBS Switzerland AG is the sole borrower (principal) in respect of the ETF and
guarantees all contractual duties. To protect the ETF against UBS counterparty
risk, UBS Switzerland AG provides collateral according to stringent FINMA
regulations (Collective Investment Schemes Ordinance).
What is the general process for Luxembourg UBS ETFs securities lending?
1. The terms of the trade are agreed between the lending agent and the borrower,
and collateral is delivered.
2. Once the collateral has been received by the lending agent, the lent/borrowed
securities are transferred to the borrower.
3. The lender (i.e. the ETF) remains the beneficial owner of the security on
loan. As such, the lending agent collects all entitlements paid on each security
whilst on loan and passes these back to the lender as a manufactured payment.
The lender is in the same economic position as if the security had not been
lent.
4. The borrower pays the lending agent the pre agreed lending fee. Payments are
agreed and made on a monthly basis.
5. The borrower returns the securities once the demand is fulfilled, or earlier
if the lender liquidates a position. All trades are recallable on demand on a
daily basis and no fixed term trades are entered into.
6. Once the security has been returned to the lender's custody account, the
lending agent returns the collateral held to the borrower.
What is the general process for Swiss UBS ETFs securities lending?
1. UBS ETFs have given the securities lending mandate to UBS Switzerland AG,
acting as principal securities lending provider.
2. UBS Switzerland AG re-uses the borrowed securities in line with demand from
street-side borrowers and from UBS-internal sources. UBS deals with external and
internal borrowers on an at-arms-length basis.
3. UBS ETFs only have credit risk towards UBS Switzerland AG, but not to
street-side borrowers.
4. Fees received from the market borrower are shared according to a pre-agreed
fee split arrangement between the UBS ETF and UBS Switzerland AG.
5. In case a security is on loan over a record date, UBS Switzerland AG passes
on all corporate actions to the ETF. Coupons and dividends will be paid to the
ETF via a substitute payment ensuring the ETF is economically at least in the
same position as it would be if the securities had not been on loan over record
date.
6. UBS Switzerland AG will return the securities to the ETF upon termination of
the loan, or if the ETF wishes to regain the securities, for example in case of
a sale. The ETF portfolio manager can sell securities anytime even if they are
on loan. For this reason, securities lending does not interfere with the main
investment process.
How are the securities lending loans collateralized for ETFs domiciled in
Luxembourg and Ireland?
Securities lending transactions for UBS ETFs set up in Luxembourg are fully
collateralized. The Luxembourg regulator requires a minimum collateralization of
90%; however, UBS ETFs overcollateralize to 105%.
The collateral is held in a custodian account that is ring-fenced from the
lending agent's balance sheet. Further risk mitigation measures are careful
selection of borrowers and revaluation of loans and collaterals on a daily
basis.
Securities lending for ETFs domiciled in Luxembourg and Ireland
For UBS ETFs, domiciled in Luxembourg and Ireland, that engage in securities
lending, the following types of collateral are currently accepted:
* Equities from the following indices are acceptable: AS30, AS51, ATX, BEL20,
SPTSX, KFX, HEX25, CAC, CN20, DAX, HDAX, HSI, FTSEMIB, NKY, AEX, OBX, FSSTI,
IBEX, OMX, SMI, SPX, MID, INDU, NYA, CCMP, RAY, RIY, UKX, SX5P, N100, E100,
FTAW01
* Government Bonds from the following countries are acceptable: Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Japan,
Netherlands, New Zealand, Norway, Sweden, SNB Bills, UK and USA (including
agencies)
Source: State Street, July 1, 2022
TYPE AND LEVEL OF COLLATERALIZATION REQUIRED FOR LUXEMBOURG AND IRELAND
DOMICILED ETFS*
Type of borrowed securities
Type of borrowed securities
Type of collateral - Government bonds
Type of collateral - Government bonds
Type of collateral - International equities
Type of collateral - International equities
Type of borrowed securities
International equities
Type of collateral - Government bonds
105%
Type of collateral - International equities
105%
Type of borrowed securities
US equities
Type of collateral - Government bonds
105%
Type of collateral - International equities
105%
Source: State Street, July 29, 2014
* The level of collateralization depends on the individual securities lending
and the collateral used. For UBS ETFs, there is a minimum over-collateralization
of 105%. This means that the full market value of the collateral will in any
case exceed the total value of the securities lent. Collateral and lending
positions are marked to market every day.
How are securities lending loans collateralized for Swiss-domiciled UBS ETFs?
Securities lending transactions for Swiss-domiciled UBS ETFs are fully
collateralized. UBS Switzerland AG has a robust collateral setup which is in
line with the FINMA Collective Investment Schemes Ordinance.
UBS ETFs receive collateral with a collateral value of at 105% of the market
value of the lent securities. The collateral consists of liquid assets,
including government bonds, liquid equities and bonds with a minimum rating
stipulated by one of the FINMA approved rating agencies. When determining the
collateral value of a security, its market value is reduced by a haircut of up
to 8%.
Various concentration limits ensure proper diversification and liquidity of the
collateral portfolio.
A daily mark-to-market process ensures that the collateral value is updated to
reflect the loan value.
Collateral is held in the name of the lender in a segregated collateral account
which is remote from the bankruptcy estate of UBS Switzerland AG.
Securities lending for Swiss-domiciled ETFs
For Swiss-domiciled UBS ETFs that engage in securities lending, the following
types of securities are currently accepted as collateral (excluding securities
of the borrowing counterparty):
* Government bonds issued by G10 countries. Government bonds not issued in the
US, Japan, UK, Germany or Switzerland must have at least an "A" rating or
equivalent
* Corporate bonds with minimum rating of "A" or equivalent
* Equities issued by companies represented on the following indices: AEX, ATX,
BEL20, CAC, DAX, INDU, UKX, HEX25, KFX, OMX, OBX, SMI, SPI, SPX, SX5E
Source: UBS Switzerland AG, September 20, 2021
Haircuts and margin*
A 5% margin is added to the market value of the lent securities to determine the
collateral requirement. The collateral value of a security is equal to its
market value less a haircut as per the below table:
Collateral
Collateral
Haircut
Haircut
Collateral
International equities
Haircut
8%
Collateral
Government bonds issued by US, JP, UK, DE, CH
Haircut
0%
Collateral
Government bonds with a minimum rating of "A" (excluding US, UK, DE, CH)
Haircut
2%
Collateral
Corporate bonds with at least an 'A" rating
Haircut
4%
Source: UBS Switzerland AG
* Collateral and lent securities are marked-to-market on a daily basis.
A haircut is a valuation discount applied to the underlying securities. It
serves as an additional safety buffer and varies depending on the type of
securities pledged as collateral and their expected price fluctuations. As
haircuts are deducted from the underlying collateral, additional collateral must
be provided corresponding to the respective haircut.
What is the maximum amount lent from a fund for UBS ETFs?
UBS has limited lending by any one UBS ETF to 50% of its assets under
management. In practice and as a rule, the proportion actually lent is
significantly lower
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