ETFs, for Exchange traded funds or listed index funds, are booming. This investment vehicle, which aims to reproduce an index such as the CAC 40, the Nasdaq or the S & P 500, is at the crossroads between a stock and a Sicav: it takes the form of a fund but is purchased via direct orders. And it can be housed in all wealth envelopes, whether it is a stock savings plan (PEA), a retirement savings plan (PER), life insurance or a securities account. “It is an excellent way to get started in the stock market, because it avoids the work of selecting stocks, which requires an in-depth analysis of each company considered”, considers Christian Sanson, head of training at Bourse Direct. Savers have not been mistaken since 296,000 individuals have bet on these vehicles in 2023, twice as many as five years previously. The enthusiasm will continue to grow significantly in 2024, according to the Financial Markets Authority.
Another key advantage: “The management is passive, without a team mobilized on a daily basis, which allows us to offer fees up to ten times lower than those of active management,” continues Christian Sanson. In concrete terms, ETFs display very low management fees, most often around 0.30% of the outstanding amount per year, which will have little impact on your potential capital gains. “This is particularly attractive for long-term investment, over several decades, because the declines are limited and the gains – preserved by low fees – can be reinvested,” adds Xavier Prin, marketing and communications director at BoursoBank.
This is why the online bank has chosen 100% ETF management for its Matla retirement savings plan. Added to this is the fact that the economic climate is favourable to index funds. “In bullish periods on the markets, managers have difficulty beating the indices,” says Olivier Malteste, investment director at Yomoni, which offers passive management under mandate. Thus, in 2023, our ETF allocations beat 93% of comparable funds available on the market.”
The defects of their qualities
The downside is that ETFs have the drawbacks of their qualities. You will face market fluctuations, which will not be cushioned by a manager capable of reducing their exposure or making a selection of securities adapted to the context. Another difficulty is that selecting these products is not always easy. “The instrument is transparent and all the useful information is available online, but it is not easy to understand,” points out Sihem Labbas, head of Benelux and French-speaking regions at WisdomTree, a specialist manager of listed index funds. There are indeed a large number of indices, from the simplest to the most sophisticated. “In addition, two ETFs supposed to reproduce the same performance can in reality be very out of sync: we have observed funds varying from -20% to +20% on the theme of semiconductors and between 0% and 50% on energy,” illustrates Sihem Labbas.
The mechanics of the product are also not obvious: you have to understand the underlying index but also the fund’s replication technique. There are two types of ETFs: physically replicated or synthetic. The former are the simplest in terms of concept. For example, to replicate the CAC 40, the ETF owns the shares of the 40 companies concerned, with the right weighting. The latter are made up of a portfolio, called collateral, whose performance is exchanged with that of the target index, through a swap contract. Each has its advantages and risks. Synthetic ETFs need a third party that accepts the performance exchange. This player must be solid, as must the portfolio provided as collateral. As for physically replicated ETFs, be aware of a possible loan of securities: funds sometimes rent their shares in order to receive compensation that improves performance. An interesting calculation, provided that the borrower is strong enough to actually return the securities at the end of the loan! So many manipulations that increase the risk taken by the saver.
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