Synthetic replication
Reproducing an index not by buying its constituents but through a swap with a bank that undertakes to pay the fund the index return in exchange for the return on a collateral portfolio.
How to read the number
It opens access to markets where the fund cannot buy securities directly and usually tracks the index more closely than owning part of its constituents would.
When the metric lies
It introduces counterparty risk that physical ownership does not have: the return is a bank's promise. The collateral does not match the index, so in stress it is the collateral that has to be assessed.
Also known as: swap-based replication