ETF industry undermines Fundsmith's warning

In an open newsletter to shareholders in the Fundsmith Equity Fund, Smith criticised the more complex strategies now offered under the ETF umbrella, focusing in on synthetic and leveraged funds. Attacking "so-called synthetic ETFs" and "so-called swap agreements," Smith asks what if the counterparty supplying the swap defaults? In addition to Ucits regulations that restrict counterparty exposure to 10% of an ETF's net asset value, most ETF providers now work with fully or over-collateralised models. However, Smith argues that "collateral is an imperfect science even where it is hel...