Efforts in Europe to provide a clear classification system for exchange traded funds and their risks are a sensitive issue with ETF providers, and may be sowing more confusion, according to a report.
The largest European ETF providers, State Street, iShares and Lyxor, separately published guidelines on their products last week, but the three came up with varying and even conflicting definitions on many similar ETFs, reports Rebecca Hampson for Financial News. [BlackRock Calls for More Disclosure, Transparency in ETFs]
Gordon Rose, an ETF analyst at Morningstar, explains that ETF providers are loath to standardize the guidelines for competitive reasons. [ETF Classification System]
In the wake of the bad publicity stemming from “synthetic” ETFs that trade in derivatives, iShares now defines these ETFs as “derivatives replicating ETFs,” whereas Lyxor lables them as “physical ETFs with swaps.”
Additionally, iShares now categorizes “physical” or passive Indexing ETFs as ETFs that can be “fully replicated or optimized/partially replicating” while Lyxor labels them as “physical ETFs with securities lending” and State Street keeps them simply as “ETFs”. [Index ETFs Gaining Traction in Europe]
Alain Dubois, the chairman of Lyxor, said that “physical ETFs” may be misleading since these ETFs lend out underlying securities.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.