GlossaryPhysical replicationFull replicationOptimised samplingSynthetic replicationSwap-based ETF

Replication method (physical, sampled, synthetic)

The replication method is how an index fund or ETF reproduces its index: holding every constituent, a representative sample, or a swap that delivers the index return.

The replication method describes how an index fund or ETF delivers the return of its benchmark. There are three common approaches.

Full physical replication holds every index constituent at its index weight. Simple and transparent, but costly for indices with thousands of small or illiquid members.
Optimised sampling holds a representative subset chosen to match the index's risk characteristics, accepting a little extra tracking error in exchange for lower trading costs.
Synthetic replication holds a substitute basket of securities and enters a total return swap with one or more counterparties who pay the index return. UCITS rules cap counterparty exposure and require collateral.

Why it matters

Replication determines what an investor actually owns and which risks they carry. Physical funds expose you to securities lending and sampling error; synthetic funds add counterparty and collateral risk but can track hard-to-access markets closely and, for some US equity indices, benefit from dividend withholding tax treatment. It also changes how you should read a holdings file: the top holdings of a synthetic ETF are the substitute basket, not the index.

In the API

The structure string and the holdings list carry the practical evidence of the method.

json
{
  "structure": "UCITS ETF, physical replication",
  "profile": { "kind": "index-tracking equity ETF" },
  "topHoldings": [
    { "name": "Example Corp", "weight": 4.8, "isin": "US0000000001" }
  ]
}

Example values. Compare with top holdings and tracking difference.

Common pitfalls

Sampled funds can hold fewer than half the index constituents, so keyFacts.holdings may be far below the index count without anything being wrong.
Synthetic ETFs sometimes publish both the substitute basket and the index constituents. Check which one you are displaying.