Growth means increased scrutiny for ETFs. The British Financial Services Authority and the Financial Stability board have commented that the rise of ETFs could harm the financial system. More recently, Terry Smith, CEO of Tullett Prebon, remarked that the average investor may not understand the risks involved with trading the ETFs, reports Stephen Womack for Mail Online. [Risk and Your ETF Portfolio: How to Protect It.]
ETFs require due diligence like any other investment. They aren’t a magic bullet.
One advantage of transparent ETFs is that investors can monitor the portfolio. That lets them know if ETFs hold stocks, gold bullion, bonds or commodities futures contracts, for instance. Investments that hold derivatives may involve counterparty risks as well.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.