1) If I understand correctly, a Sampling Strategy ETF is an index fund in which:
100% of assets are allocated in <100% of the companies composing the index.
<100% of assets are allocated in <100% of the companies composing the index and the rest of the assets are allocated in different areas.
If my understanding correct?
One example is the iShares Russell 2000 ETF (IWM B+). IWM invests 90% of its assets in stocks from the underlying index. Its remaining assets are invested in products such as futures, options and swap contracts, as well as securities not included in the underlying index. This is done because the fund manager feels these instruments will create a more efficient replica of the original than trying to purchase every stock in the index. Rather than buying all 2,000 stocks that compose the Russell, and then have to exactly match the weightings of each security, the fund manager uses approximately 10% of assets to replicate the index with derivatives.
I do not understand how "these instruments will create a more efficient replica of the original than trying to purchase every stock in the index." Do they mean that investing in every single company will prove too complicated since some are not listed on big exchanges? And when talking about replicating "the index with derivatives" do they mean the growth rate in "the index with derivatives" would be the same as in the real index? How does the fund manager choose these other investments that will "replicate the index" ?