ETP is an acronym that stands for Exchange Traded Products, translated as products quoted on the Stock Exchange. In practice, it is a family of financial products that includes within it the funds ETFs, ETCs and ETNs. The ETP funds are passively managed and are usually characterized by an excellent diversification in the market. Their main advantage is cost savings, although the return of traditional mutual funds or SICAV may be demonstrated.
The goal of the ETP is always to replicate an index through the purchase or sale of a financial instrument, but they can do it with different structures. If there is a physical sale and purchase of securities it comes to cash-based ETP, but if you acquire derivative contracts such as swaps it comes to swap-based ETP. In the latter case, if the swap counterparty fails to make payments, the investor runs the risk of default. However, this risk is usually minimal because the managers responsible carefully choose the most solid counterparties and sign various contracts in order to diversify the risks of failure. If then the swap-based ETP complies with UCITS III regulations, the exposure of the swap counterparty to the transaction cannot be greater than 10% of the total money invested.
The swap-based ETP are chosen when the manager wants to implement the following two investment strategies that define complex:
* The lever by which performance is achieved many times higher than the underlying index, positive or negative;
* Those short, with which you will get returns inversely with respect to the underlying index. If it loses 10%, the investor earns 10 % and vice versa.