Leverage

In response to investor demand

No one-way street

Investors are not receiving adequate information on the extent to which funds are being levered up through the use of derivatives, a review by the Financial Conduct Authority (FCA) has found.

Fundsmith founder and manager Terry Smith has warned of the "pernicious danger" underlying ETFs, months after labelling the product an "investment fad" that investors misunderstand.

The FSA has expressed its concerns about advisers' understanding of ETFs, as take-up of the products rises in the lead-up to RDR.

The Royal Bank of Scotland has launched 12 ETFs providing exposure to monthly leveraged and euro currency hedged indices.

The FSA has warned leveraged ETFs could be classed as 'generally unsuitable' for the mainstream retail market, along with complicated structured products and trade life policy investments.

Asset managers and IFAs have countered active fund manager Terry Smith's warning ETFs are a "new investment fad" that investors misunderstand.

ETF Securities has launched 16 ETCs providing triple long and short exposure to currencies.

Returns on leveraged ETFs do not fluctuate as much compared to short ETFs without leverage, when held for shorter time periods according to Deutsche Bank.