A recent survey has found that exchange traded funds (ETFs) that invest in alternative, or niche, asset classes are getting more difficult for investors to understand, as the market liquidity is waning. What can you do about it?ETFs are known for their transparency, low fees, and liquidity, as well as their ability to capture a small or niche area of the market. Of late, these so-called niche products have simply become too confusing for investors as the market conditions have turned.
Fewer than 30% of investors in hedge fund and real estate ETFs express satisfaction with these products, down from 60% a year ago, according to a survey conducted by Edhec, reports Sophia Grened for Financial Times.
Investing in such niche ETFs takes education and understanding. Hedge fund and institutional investors use ETFs frequently and tend to understand the proper utilization, while retail investors may not always do so.
Although “niche” funds can be confusing, they do offer alternatives to many investors and provide more versatility to you portfolio. By doing additional research, you just might be able to find a way to fit them into your overall strategy. And by being properly educated, it will enhance your experience with investing.
If you’re among the confused, some things that you can do to counter that include:
- Ask other investors questions. Visit our forums to do this.
- Read through our site and our education page. You can use the search function or view our topic index to find dozens of articles on many funds.
- To ensure liquidity, look for funds with high trading volume and high assets.
- Visit the provider’s site. Many ETF providers have very thorough ETF education sections, and they also have comprehensive information about each fund they offer, complete with fact sheets, break downs and objective.
- Above all, don’t invest in what you don’t understand. If you’re not sure about something or don’t quite get what it does, then stay away.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.