Summary of index replication methods used by ETF providers

Exchange-traded funds or ETFs offer the possibility to invest in all the components of an index in a single transaction. To do so, these funds need to efficiently “track” or “replicate” such index, for which they may use various methods. There are several “index replication methods” or “strategies” that have not yet been officially classified and whose terminology is not harmonised. This diagram prepared by Argos TSP’s Research Team offers a practical classification and clarification of the current terminology about index replication methods used by ETF “providers” or “managers”. Here are the terms that are generally used by the various players in the global ETF industry. This typology may evolve over time… and this illustration will be adapted accordingly!