Fund units are always to be seen as special assets

It should be noted that the money invested in a fund is considered special assets and is therefore protected. Thus, as an investor, you do not have to worry if the ETF provider goes bankrupt – the fund shares remain in the possession of the investor.

This is because the law stipulates at this point that the fund company is obliged to always keep the clients‘ money (i.e. the fund shares) separate from the company’s assets.

As a rule, the money is deposited with independent custodian banks. For iShares such as Xtrackers, the money is stored at State Street Bank (Luxembourg and Ireland). Comstage trusts BNP Paribas.

This means that the money cannot be counted as part of the bankruptcy estate in the event of a fund company going bankrupt. Following the bankruptcy, the custodian bank is obliged to take over the administration – either until another ETF provider buys the fund’s units or permanently. See indexuniverse.eu for more infos Indexuniverse on

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If the custodian bank becomes insolvent, i.e. not the fund company, the law also states that there will be a transfer of the fund shares to another trustee. This new trustee then becomes the new depositary. Here, too, there is no disadvantage to be feared.

The very low risk is particularly appealing to safety-oriented investors and savers.
What is an ETF – Physical ETFBecause it is easier for investors to understand when the ETF provider buys shares, i.e. there is a physical replication, this variant is perceived as automatically safer.

However, it should be mentioned at this point that the risk in both cases, i.e. with physical and synthetic funds, is extremely low. And ultimately only exists in theory.

Physical ETF

The provider does not always acquire all the shares in the index. If it is a broad-based index, such as the MSCI World, there is only an optimised selection of shares that the provider holds. Ultimately, this is also sufficient to be able to replicate a corresponding performance.

As already mentioned, this is called optimised sampling. At the same time, the ETF provider lends parts of the stock portfolio to other market participants – these can be investment banks or securities traders. In this way, a somewhat better return can be achieved for the investor.

It should be noted that this securities lending is a strictly regulated as well as collateralised transaction. This means that the trader who then borrows shares from the ETF provider must provide collateral – for example, government bonds.

At the end of each trading day, a check is made to see whether the bonds deposited still correspond to the value of the shares. If this is not the case, the securities dealer must make adjustments. This ultimately also ensures that the ETF value – despite securities lending – always moves like the index.

Fund units are always to be seen as special assets