Fundusze ETF, Robert Sochacki, Kazimierz Szpak, #6 Traderzy dla Traderów

The biggest tracking error was on 11 Bit Studios at 0.012%, and the smallest at -0.008%, which is practically a perfect replication of the index structure. I won't dwell on the tracking efficiency changes since you're probably familiar with the dimensions of tracking difference. I think we'll skip this slide at this stage.

Similarly for mWIG40 - the chart is positive but larger due to an operational situation at launch when a large investor withdrew and certificates weren't created, causing an extraordinary profit on the fund side. No one should feel disadvantaged.

Let's move to the next slide showing the tracking difference for our fund versus the synthetically replicated WIG20 ETF. You can see that during dividend season there was a drastic deterioration. The first half year was perfect, but many investors aren't aware that synthetic replication can bring surprises - the swap provider simply pays 15% dividend tax, as we established.

An important thing: the trading session schedule for ETFs on GPW differs slightly from stocks. At our request, the exchange agreed to shift closing price setting to 17:02 so investors have time to determine the net asset value, because the ETF is essentially a derivative instrument dependent on the stock market. Many institutions reference the closing price, so it's the most important price for these investors. The exchange also shifted opening by about 5 minutes.

Liquidity is something many media firms repeat to the point of tedium. It's a nightmare for the entire capital market worldwide - most people don't understand the depth of liquidity on the ETF market. Everyone is accustomed to order book liquidity for stocks and assumes no visible volume means no liquidity. But that's not true - since ETFs are derivative instruments linked through arbitrage, any deviation generates profit opportunities for market participants. At the second level of the pyramid, we see hidden liquidity at the market maker, who has inventory and the ability to create or redeem certificates directly with the fund. At the bottom is primary market liquidity where any investor can make large subscriptions or redemptions - intended only for very large investors.

Here's the first example of an improperly executed transaction. An investor places a buy order for 15,000 certificates and trades at four different prices, paying up to 0.60 above the best sell price. The market maker would have reposted offers within seconds. The second example shows an investor placing a buy order for 50,000 certificates at an attractive location for the market maker, who will happily consume 150,000 certificates since he can hedge on both primary and secondary markets. The market maker doesn't need large inventory to sell larger quantities.

The market maker's pricing consists of several factors beyond the asset value: transaction costs, taxation, fixed costs for maintaining the structure, labor costs, and the spread on both sides. This creates a minimum spread the market maker tries to maintain. Here's how the fund values its assets: with four stocks worth 35 million PLN, cash zero, liabilities zero, net asset value is 5 million. With 100,000 certificates, that gives 50 PLN per certificate. Our two listed funds follow this mechanism.

Here's how any market participant can estimate value using simple formulas: take the official net asset value and the last closing, check how much the index changed, estimate costs at about 0.036% daily, subtract for weekends, and you have the theoretical fund value. Both formulas give nearly identical results, differing by only 5 groszy. The estimation is accurate enough for investors. To further simplify: take the last available valuation, add or subtract the index change, and you have the theoretical certificate value. For mWIG40 the situation is identical - the valuation matches to the penny.

This slide compares two fund types: a 'cheap' fund with low management costs but higher transaction costs, and a 'premium' fund with higher management fees but lower transaction costs. For a one-year investor, management costs matter more. For a one-month investor, management costs are negligible at six groszy versus 6.3, while transaction costs reach 45 groszy. You need to look at total cost - entry, holding, and exit - together to decide which is better. Thank you for your attention, we've gone through everything.

In short: you give us money, choose the management fee, and we work to earn a return. We deliver the index as the investment objective. We don't promise profits or losses - we aim to replicate the index as faithfully as possible. About 95% of portfolio returns depend on asset allocation, not stock selection. If someone wants exposure to Polish small and mid-cap stocks without insider information, an ETF is better due to very low costs. Eighty percent of active managers don't beat their benchmarks. If investing for 5, 10 or 20 years and you can't predict which manager will outperform, a passive ETF may be better. We're simply saying: if you want Polish stock exposure, buy something efficient, and we believe ETFs are that efficient tool.

It results from the Investment Funds Act. Every fund must be operated by an investment fund society. The custodian bank can be any bank with securities custody capability - it could be Citibank, PKO BP, or any other bank. We chose ING because they were responsive and flexible. The market maker must be a licensed brokerage house. We talked to various partners with varying enthusiasm - some were part of large conglomerates with no interest in promoting a low-fee product like our ETF at 0.4% management fees versus the typical 4% for active funds. Distributors dictate terms, making this inherently difficult when someone makes a living selling high-fee funds.

It's primarily about cost-effectiveness. With dividends, the fund doesn't have cash on hand - only a receivable. The fund could take on expensive credit, or replace 0.7-1.0% of assets with a synthetic futures position, freeing up cash. If we wait for actual dividend cash, we'd be underinvested for two weeks, losing index performance. So we invest immediately using futures requiring no cash outlay. When dividend cash arrives, we sell futures and buy stocks. This is far more economical than credit lines.

We don't lend stocks yet, but we see a serious opportunity for the national fund. The idea is we earn management fees, and better results from securities lending attract more investors. The fund's statute allows all lending income to go to the fund and the lending agent. Someone wanting to borrow stocks must go through an intermediary.

We're in Poland. If we had a billion PLN in each fund, we'd have lower fees. We need hundreds of millions per fund to break even. We currently have about 26-27 million in WIG20 and about 75 million in mWIG40 - getting closer but still investing in the future.

This is more a question for active managers or market analysts. We see ourselves as tool providers for those with market knowledge. We don't advise on asset allocation. The WIG20, which accounts for 85% of trading, has barely moved in 10 years. But if not for specific events like COVID, it would be in a very different place. It depends on demand and whether fresh capital comes. The market does seem cheap. I wouldn't want to enter the debate about whether to buy WIG20 - if someone doesn't like the heavy state ownership, energy, and financial sectors, there are alternatives. When politics determines prices for a large portion of WIG20 companies, it's hard to predict outcomes. The financial sector has large representation, but these are private banks with greater diversification.

A total return swap is used, where the swap provider and the fund are counterparties. The provider guarantees to deliver the WIG20 return in exchange for the return on assets the fund actually holds - in this case large-cap European stocks, none Polish. The swap provider determines what assets the fund holds. It shouldn't matter to end clients what's happening underneath, as long as it works. If things diverge, the synthetic fund effectively becomes an active fund that needs to be sold.

Exactly - not until it goes wrong. If they diverge, they become active funds that need to be sold. So it's important they remain liquid.

You can't answer definitively - it depends on the broker. ING has a promotion at 0.1% for buy transactions. We're talking secondary market - we discourage primary market use except for very large orders of millions. Just buy on the exchange at the market maker's price. For comparison, WIG20 futures cost 30-40 PLN per transaction, but require managing margin deposits and rolling every three months - a significant operational burden for long-term investors.

Like the Buffett bet, those were results after fund costs but from the fund's perspective, not the investor's. The differences were large - the best active fund returned 84% over 10 years while the index did much better compounded. For investment decisions, look at everything together: acquisition cost, holding costs, trading commissions - the total cost of ownership for the certificate or fund unit.

The logic comes from professional secrecy - active fund managers want to protect their strategy. Regulators require disclosure only at specific moments, typically quarterly or semi-annually. ETFs would ideally publish daily, which is the whole advantage globally. What we do instead is publish the portfolio that investors would receive if they redeemed certificates for underlying securities - so we publish the current portfolio daily matching the index composition, essentially showing total exposure. It's not exactly publishing portfolio weights, but showing what we'll deliver.