The recent surge in popularity of commodities ETFs and the lack of understanding as to how they work is making them an "easy target" for criticism, according to ETF Securities (ETFS).
ETFS Marketing head of product and investment strategy Fred Jheon says media articles warning investors against commodity-based ETFs are "needlessly misdirecting" people away from the real issues affecting these products.
Speaking at the Morningstar ETF conference held in Chicago, Jheon says the confusion stems from ETFs that hold futures and investors not completely understanding how they work.
For example, when commodities are in contango - when an imminent futures contract is more expensive than an expiring contract - then the fund and the investors can experience a loss.
Jheon says: "That's where a lot of investors got tricked or stung."
He adds: "Investors really need to understand how a product works before investing their money in it."
In terms of physically-backed ETFs, some investors express concerns that a firm selling a gold-backed fund, for example, may not actually own the gold.
However, Jheon says the industry is "very transparent," as the bars of gold are individually coded, with most gold ETFs posting online the codes of gold bars held in the fund. The codes can then be checked with the vaults storing the gold.
Taking the time to look
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