ETFs like to lend out some of their securities to short sellers as it can be a good way to lower costs and make some extra revenue for the shareholders in the process. The main concern is the counterparty risk that comes with it.
Smart Beta ETFs
This is a new style of ETF attempting to build on the traditional foundation by basing the portfolio on predetermined financial metrics or behaviors. It has become a widespread practice in many ETFs today as they follow a set methodology.
Synthetic ETFs are exchange-traded funds that aim to track the performance of an underlying index or benchmark through the use of derivatives, such as swaps, rather than by holding the actual underlying assets. Synthetic ETFs are often used to provide exposure to assets that are difficult or expensive to hold directly, such as foreign stocks or commodities. The ETF enters into a swap agreement with a counterparty, typically a large financial institution, which agrees to pay the ETF the return of the underlying index in exchange for a fee. Synthetic ETFs can provide a convenient and cost-effective way to access certain markets and assets, but they also carry a higher level of counterparty...