ETFs must be kept simple in structure for implementing investment strategies, according to industry players.
Evercore Pan-Asset CEO Christopher Aldous says there is an increasing supply of new, complex ETFs coming to market, offering different styles of active management and the ability to gear or short the underlying assets.
He says: "Simple ETFs track main indices reliably, have low costs and are as liquid and as risky as the underlying market they track."
However, he says as soon as contracts for differences, options, short sales and other financial techniques are introduced, the cost, risk and complexity of the fund are all increased.
He adds: "Such products should be called Exchange Traded Products, not Exchange Traded Funds, to warn people they are different."
He says ETFs are a powerful tool for financial advisers preparing for a post Retail Distribution Review environment, and can serve to reduce the overall cost of investment. "We don't want ETFs being given a bad name by someone developing a complex product which goes wrong."
Spencer-Churchill Miller Private fund manager Alan Miller says: "One of the biggest issues is a lot of people buy ETFs and don't realise that they are not actually buying ETFs."
He says: "We just invest in ETFs because we believe they are the top of the tree and we won't invest in ETNs and ETCs. There is no problem with people having a choice, but a lot of people think they are buying ETFs and they're not."
He adds: "People should know what they're getting into, because of the different risks associated with ETNs, ETCs and ETFs."
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