Replication (ETF)
The method an ETF uses to track its index: physically with real stocks or synthetically through a swap.
In short
As of 8 October 2026Replication is the method an ETF uses to track its index. With physical replication the fund buys the index stocks, either all of them or a representative sample. With synthetic replication it holds a different basket of securities and swaps that basket's return for the index return. Both variants are tightly regulated in the EU.
Replication describes how an ETF obtains the performance of its index. With physical replication the fund actually buys the stocks, either all of them (full) or a representative selection (sampling, optimised). The latter is common for very broad indices with thousands of small stocks.
With synthetic replication the fund holds a different basket of securities and exchanges its return for the index return under a contract. That is how a swap ETF works. Both approaches are tightly regulated in the EU, and the money remains segregated fund assets.
Example: a physical MSCI World ETF holds around 1,300 stocks directly. A synthetic ETF on the same index may hold 100 different stocks and receive the difference to the index return from a bank. How well each variant tracks is shown by the tracking difference.
Related terms
Sources
As of 8 October 2026 · Educational content, not investment or tax advice.