As the exchange traded fund industry expands, the growing sophistication and complexity of ETF products is doing more harm than good, an executive at BlackRock’s iShares said in a recent report.
Nick Good, head of iShares business in Asia-Pacific, believes the increasing complexity is hurting the ETF market and sweeping reforms are needed to sustain industry growth, report Samuel Shen and Kazunori Takada for Reuters.
“Investors are increasingly confused as more and more complex (ETF) products are issued … Unless the industry can reform itself, I think we risk doing harm to the industry,” Good said. “Turning to the basics or turning to the roots of what made the industry successful will maintain, if not accelerate the growth that we’ve seen.”
The ETF industry has been looking beyond the passive-indexing methods and leaning toward complex products that hold derivatives, unsecured debt or commodity-related assets. [BlackRock Calls for More Disclosure, Transparency in ETFs]
“These are products that are created to be simple, but (they have) become very opaque, and very difficult for an average investor in the street to understand,” Good added.
On Wednesday, a Senate subcommittee will hold a hearing on whether ETFs are boosting market volatility and increasing systemic risks.
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.
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.