How do Cache Exchange Funds with Index Sync work?

Index Sync is a portfolio construction feature built into Cache’s Flagship exchange funds. It improves diversification and significantly tightens alignment to the benchmark index by using ETFs to rebalance the portfolio.

Initially introduced in Summer 2025 with the launch of Bedrock, our exchange fund benchmarked to the S&P 500, Index Sync is now available across our Flagship fund suite. Since its implementation, our flagship exchange funds have shown strong correlation to their benchmarks. In Q3 2025, UNIX, our Nasdaq-100 fund, reported a 0.99 correlation to the benchmark.

Index Sync is available exclusively in Cache’s Flagship exchange funds and is open to Qualified Purchasers ($5M+ in investable assets):

Every day, investors with concentrated stock positions enroll with Cache. Based on current fund composition and available capacity, they receive a real-time match that indicates a matched amount and onboarding date for their stock.

As Cache operates multiple funds benchmarked to different indexes, capacity varies by stock and by fund. At any given time, hundreds of investors are matched to each fund, and each new match is evaluated to benefit the fund, in addition to providing diversification for the investor.

Example

You hold a $1.9M position in Amazon (AMZN). Based on current capacity, you might receive:

Investors who choose to proceed are onboarded on a scheduled exchange date, typically every two weeks. These exchange dates serve two purposes:

By thoughtfully adding positions that improve alignment with the benchmark, the fund’s composition evolves as it grows.

An exchange fund cannot practically receive contributions in the exact proportions of every index constituent — it’s a logistical impossibility. Therefore, exchange funds approximate the index through careful portfolio construction, but this approach can still result in tracking error.

Index Sync is designed to reduce that gap.

Periodically, Cache contributes a diversified subset of the exchange fund’s holdings into a newly formed ETF aligned with the fund’s benchmark (like an S&P 500 index).

This process uses a Section 351 ETF contribution, a tax-efficient mechanism that allows diversified portfolios to be transferred into an ETF without triggering gains.

After this one-time ETF seeding, the exchange fund holds a mix of individual stocks and ETF shares. The ETF provides exposure to index constituents that were not directly contributed, and thus, overall index coverage becomes more complete.

When measured quantitatively, active risk, tracking error, beta, and other metrics align more closely with the benchmark.

After Index Sync, the fund now has economic exposure to most benchmark components, either directly or through ETF shares. At this point, the exchange fund includes:

After the required 7+ year holding period, investors receive a redemption basket designed to be a representative slice of the fund. Typically, this includes:

Most redemption baskets contain approximately 15–25 positions, optimized to align closely with your fund benchmark.

Investors can choose from three distribution approaches:

Index Sync represents a significant evolution in exchange fund design. By combining traditional exchange fund mechanics with ETF precision, Cache transforms exchange funds into a powerful tool that delivers tax-efficient diversification with institutional-grade benchmark tracking.