Abstract
This article compares the three Delta One investments—futures, swaps, and exchange-traded funds—across three key dimensions: operational efficiency, cost, and risk. Examples are used to provide an indication of the typical costs associated with all three investment options. Some of the key findings from this article are:
The most appropriate Delta One investment will always be a function of individual investor needs, preference, and constraints.
ETFs offer a useful mix of low costs and operational efficiency.
From a pure cost perspective, futures perform well, mainly due to roll-related contract mispricing.
In terms of risk, the lowest tracking error should be attainable from swaps.
Increased market concern about counterparty risk is negative for swaps but positive for futures and ETFs.
- © 2009 Pageant Media Ltd
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