Michael Stewart, Amundi ETF & Indexing, talks about ETF synthetic replication, what investors should consider when choosing a replication type and where it could make sense to add swap-based ETFs in a portfolio in the current environment.
Can you give an overview of the key benefits investors can expect from choosing swap-based replication?
At Amundi, swap-based ETFs are structured to maximise efficiency for investors, seeking to deliver enhanced outcomes to what would be possible by implementing a physically replicated approach.
The structure, where ETFs returns are delivered via a swap contract written with one or more counterparties, can deliver meaningful benefits for investors including: 1) Efficiency – often referred to as "structural alpha", swap-based ETFs can in certain exposures deliver returns in-excess of standard indices, 2) Access – swap-based ETFs can in certain exposures avoid market frictions, and deliver highly precise returns which meaningfully reduce tracking error, and 3) Low transaction costs – swap based exposure seeks to offer tight trading spreads investors can benefit from efficient access when purchasing a swap-based ETF.
As the largest issuer of swap-based ETFs, but with even more assets managed in physically replicated products, Amundi is a truly "replication agnostic" issuer. With the leading swap-based platform, Amundi has the ability to choose the optimal approach to replication when launching new products, targeting the most efficient outcome possible for investors.
Where in portfolio allocations should investors consider swap-based replication, and what risks should they be aware of when choosing a swap-based ETF?
Within investor portfolios there are two key exposures where Amundi would encourage consideration of swap-based ETFs from an efficiency perspective, US and Emerging Markets equities.
Efficiency in US equities comes from more favourable tax conditions in relation to US Dividends. This "structural alpha" compounds year-after-year, and can provide a compelling uplift for what is for many investors a core, long-term allocation.
The second key region is EM equites. The benefits for swap-based investing are meaningful in EM, estimated by Amundi at around 3x the swap-based benefit for US equities, and come from a variety of sources including: Structural outperformance in China, Brazil, reduction of market frictions in India, Brazil, and lower transaction costs overall. These country-specific benefits flow upwards to top level benchmarks such as MSCI Emerging Markets, meaning investors don't need to allocate to individual countries to benefit from these efficiencies.
Investors should understand how swap-based replication works in-practice, and how relevant considerations such as counterparty exposure are managed. This will differ based on each issuer of swap-based ETFs. At Amundi, we apply a unique daily reset mechanism which targets zero counterparty risk, every day.
Which swap-based allocations do you see investors most actively exploring in the current market environment?
While US equities continue to feature as a strategic allocation within investor portfolios, one key theme for 2026 has been the increase in granularity observed from UCITS ETF investors in regards to Emerging Market equity allocations.
Historically, UCITS ETF allocations to EM equites have largely found their way into broad based benchmarks such as MSCI EM. While investor continued to allocate to this exposure, 2026 has seen a step change in the granularity sought by investors as EM regions and even single countries start to take centre stage. Two areas where Amundi is receiving interest at the moment are EM Asia – driven by AI Infrastructure exposure in countries such as Taiwan and South Korea, and Onshore Chinese Equities as represented by the MSCI China A-Share Index, with interest driven by investors seeking exposure to China's domestic AI market and advanced manufacturing localisation push as outlined in the Chinese governments' latest five-year plan.
From a replication perspective, there are notable benefits to investing in EM Asia and China A-shares via swap, with structural efficiencies demonstrated for both indices and more favourable tax conditions supporting the broader EM Asia allocation.
