Xtrackers MSCI Emerging Markets Swap UCITS ETF 1D

Issuer: Xtrackers

Asset Class: Equity

TER: 18bps

Trading Currency: USD

Pays Income: False

Listing Date: 07 Nov 2023

Ticker: XMCM

ISIN: LU2675291913

This product provides broad exposure to large and mid-capitalisation companies across more than 20 emerging market economies. It is designed to track the performance of a prominent emerging markets index, offering investors a diversified and convenient way to participate in the growth potential of these developing nations. The fund utilizes a swap-based, or synthetic, replication strategy. This means it enters into a derivative contract with a counterparty to receive the return of the index, rather than holding the underlying stocks directly. This approach can be particularly efficient for accessing markets that may have liquidity constraints or higher trading costs, often resulting in a lower tracking error compared to physically replicated funds.

Investing in emerging markets can be an attractive proposition for long-term growth, driven by compelling fundamentals such as favourable demographics, rising domestic consumption, and ongoing economic development. This exposure can serve as a valuable diversifier within a global equity portfolio, reducing reliance on the performance of developed markets. However, this potential for higher returns is accompanied by increased risks, including greater market volatility, currency fluctuations, and political uncertainties. As an accumulating share class, any dividends generated by the underlying companies are automatically reinvested into the fund, which helps to compound returns over time.

This fund is best suited for investors with a higher risk tolerance and a long-term investment horizon. It can function as a core strategic allocation to emerging market equities within a well-diversified investment portfolio. Investors should be aware that the synthetic replication structure introduces counterparty risk, which is the risk that the swap counterparty may fail to meet its obligations. However, this risk is mitigated by UCITS regulations, which impose strict limits on counterparty exposure.