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Where can I find what the conversion factor is between the value of a tracker and the underlying index, other than just computing it myself of course?

Is it also explained how these conversion factors are chosen?

In particular I'm interested in Lyxor trackers. I've searched a bit on the website of Société Générale, but couldn't find what I'm looking for. The thing is, I'm not sure where to look.

  • "The philosophy of the "Lyxor Index Fund" is to track the performance of a benchmark index as closely as possible, using the most relevant and efficient techniques, through a physical replication process." They try to track index 100%, what makes you think there's a closer calculation for their ETF? – JoeTaxpayer Jun 27 '12 at 22:17
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    @JoeTaxpayer Consider: today the DJIA closed at 12,627, whereas the DIA SPDR units closed at $126.01. i.e. a factor close to 1/100 to arrive at the unit price from the index value. Might that be what the OP is asking about? – Chris W. Rea Jun 28 '12 at 0:23
  • Perhaps, but there's no formula, DIA can be swapped for its 30 Dow stocks for a small fee in sufficient qty, 50,000 units. Since DIA trades like a stock it can temporarily diverge higher/lower, but when the delta is high enough, a big boy will swap DIA for the shares or vice versa. Since they trade like that, a divergence from true value can only get so wide before this occurs. – JoeTaxpayer Jun 28 '12 at 2:40
  • Well, I was going through the documents of my bank where a short explanation of trackers was given and they said that typically, the price of a tracker will be a fraction of the value of the underlying index, as Chris says. But I think you're right, the technique is certainly to replicate the index by creating a basket of shares that are properly weighted. But this just shifts the question to how they weight the shares. – Raskolnikov Jun 28 '12 at 8:09
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I think I can answer my own question now, I've found the necessary documents through my broker's website.

An index is tracked by a replication strategy. There are grosso modo 3 different replication strategies:

  1. Full replication strategy: The fund owns all the shares and bonds that constitute the index in its portfolio.
  2. Representative sampling strategy: As the name implies, only a representative sample of the index is effectively owned by the fund, only 80 to 90% of the most liquid assets are effectively owned in the portfolio.
  3. Synthetic replication: The fund contracts a SWAP that delivers 100% of the performance of the underlying index.

The method used by Lyxor ETF's is the last one. So they replicate the index with a certain basket of assets and handle all the differences between the replicated basket and the replica through the SWAP contract.

I couldn't find how the conversion factor between index value and tracker price is decided though.

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    Nice explanation. The SPY I referenced is the first category. It's replicated by literally buying all 500 stocks in the index. Since the shares are swappable for stock in suffient quantity, there's no long term tracking error, although on any given day the numbers may not be exactly the same. – JoeTaxpayer Jun 29 '12 at 16:41
  • Coming in a bit late to this, but do you mind sharing the website you got this information from? – turnip Feb 23 '17 at 9:02
  • @Petar : replying even later XD. It would not really be useful for you anyway, but I got the info through my broker, as stated. So you have to be a client to access that page. But I think you can find this info elsewhere, if you search diligently. – Raskolnikov Oct 16 '17 at 6:47

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