How much do mutual funds rely on ETFs and derivatives to keep in line with the index?

[ToushiTime]

Hi,

I read that mother funds of global index mutual funds (not ETFs) sometimes invest in derivatives and ETFs to keep the fund in line with the benchmark index.

Does anybody know what percentage of the eMaxis Slim All Country fund ends up in ETFs?

I guess this would get tripled taxed.

[adamu]

It's a good question. I don't know the answer.

I think the important point is whether the use of derivatives could cause it to diverge from the index, as tracking the index is its job. My feeling is that cutting costs by using derivatives rather than buying the underlying investments is going to increase the risk of that happening. Could be one to look out for with everyone rushing to attract the low cost passive NISA/iDeCo crowd and have the cheapest headline rates.

[captainspoke]

Not gonna look it up, but I think vanguard says something like they do statistical sampling, or some kind of hocus-pocus, to accurately track an index, rather than actually buying it all like you'd expect.

[Tkydon]

The information for the eMaxis Slim All Country fund is included in the Prospectus Documents here:

https://emaxis.jp/fund/253425.html

https://www.am.mufg.jp/pdf/koumokuromi/ ... 240119.pdf
Page 3

https://www.am.mufg.jp/pdf/seimokuromi/ ... 240119.pdf
Page 9

https://www.am.mufg.jp/pdf/kouunyou/253 ... 0425_k.pdf
https://www.am.mufg.jp/pdf/zenunyou/253 ... 230425.pdf

It says that the eMaxis Slim All Country fund invests in other Funds that represent each sector of the total holding:

Overseas Equities - Gaikoku Kabushiki Index Mother Fund
Emerging Markets Equities - Shinkoukoku Kabushiki Index Mother Fund
Japanese Equities - Nihon Kabushiki Index Mother Fund

Each of those funds then invest directly in the Equities, etc. of that Index.

It also says that the Fund does not trade in Derivatives other than to address Pricing Risk, Interest Rate Risk, Exchange Rate Risk and to protect the value of the assets under management.

[ToushiTime]

Each of those funds then invest directly in the Equities, etc. of that Index.

It also says that the Fund does not trade in Derivatives other than to address Pricing Risk, Interest Rate Risk, Exchange Rate Risk and to protect the value of the assets under management.

Yeah, I read that too.
I am more interested in whether it uses ETFs given the triple taxation issue I mentioned above.
The longer version of the prospectus says its limits investments in other mutual funds, excluding ETFs (上場投資信託証券), to no more than 5% on P17, 5,2a and later on: 投資信託証券（上場投資信託証券を除きます。）への実質投資割合は、信託財産の純資産総額の５％以下とします。 https://www.am.mufg.jp/pdf/seimokuromi/ ... 240119.pdf
but it doesn't mention whether or how much it relies on ETFs.
On p189 it mentions how ETFs are classed as Level 1 in its valuation of assets, so it appears to hold ETFs...

[ToushiTime]

It's a good question. I don't know the answer.

I think the important point is whether the use of derivatives could cause it to diverge from the index, as tracking the index is its job. My feeling is that cutting costs by using derivatives rather than buying the underlying investments is going to increase the risk of that happening. Could be one to look out for with everyone rushing to attract the low cost passive NISA/iDeCo crowd and have the cheapest headline rates.

Rakuten's fund uses derivatives and ETFs to keep the fund in line with the benchmark
マザーファンドにおいては、ベンチマークとの連動性を維持するため、株価指数との連動をめざすETF
（上場投資信託証券）、株価指数を対象とした株価指数先物取引を利用することがあります。
(page 2 of short Mokuromisho)
https://www.rakuten-toushin.co.jp/fund/ ... acwi_P.pdf
※マザーファンドの投資信託財産の規模やマザーファンドへの資金流出入の規模によっては、ETF や株価指数
先物取引への投資割合が相対的に大きくなることがあります。
(page 12 of long mokuromisho)
https://www.rakuten-toushin.co.jp/fund/ ... cwi_Ps.pdf

Nomura's new All-Country lookalike also sometimes invests in ETFs, via motherfunds, at least for the MSCI Japan part
わが国の株式を主要投資対象とします。また、上場投資信託証券に投資する場合があります。なお、株価指数先
物取引等のデリバティブ取引を活用する場合があります
https://www.nomura-am.co.jp/fund/pros_gen/Y2140816.pdf

But I can't find anything in the eMaxis Slim prospectus other than the mention of ETFs in asset tables.
I suspect the fund does rely on ETFs to some extent, but the risk of this is probably less than for smaller funds, given that the Rakuten note above says the use of ETFs depends on the scale of motherfund assets and the flows into the motherfunds.

[Tkydon]

You should probably explore the Mother Funds
Pages 17 (PDF 19) and 216 (PDF 218) state

（３）投資制限
③投資信託証券（上場投資信託証券を除きます。）への実質投資割合は、信託財産の純資産
総額の５％以下とします。

[ToushiTime]

You should explore the Mother Funds

One of the three motherfunds tracks the MSCI Kokusai, the same index tracked by the motherfund of eMAXIS Slim Developed Nations.
I found nothing extra in the short or long version of that eMaxis SLIM fund's prospectus.

I don't know how to get info about the motherfund itself.

[Tkydon]

You should explore the Mother Funds

One of the three motherfunds tracks the MSCI Kokusai, the same index tracked by the motherfund of eMAXIS Slim Developed Nations.
I found nothing extra in the short or long version of that eMaxis SLIM fund's prospectus.

I don't know how to get info about the motherfund itself.

Pages 17 (PDF 19) and 216 (PDF 218) of the Long Prospectus state

（３）投資制限
③投資信託証券（上場投資信託証券を除きます。）への実質投資割合は、信託財産の純資産
総額の５％以下とします。

It doesn't say how much is actually in 上場投資信託証券

[ToushiTime]

You should explore the Mother Funds

One of the three motherfunds tracks the MSCI Kokusai, the same index tracked by the motherfund of eMAXIS Slim Developed Nations.
I found nothing extra in the short or long version of that eMaxis SLIM fund's prospectus.

I don't know how to get info about the motherfund itself.

Pages 17 (PDF 19) and 216 (PDF 218) of the Long Prospectus state

（３）投資制限
③投資信託証券（上場投資信託証券を除きます。）への実質投資割合は、信託財産の純資産
総額の５％以下とします。

It doesn't say how much is actually in 上場投資信託証券

I think that sentence doesn't tell us anything about ETFs (上場投資信託証券) in the fund, including whether they exist inside it or not.
Surely 「を除きます。」 means excluding ETFs, so the sentence does not apply to them?