Regulators are concerned brokers may be inappropriately putting their long-term clients into ETFs designed as trading vehicles.
“That’s akin to giving a circular saw to a toddler. These short-term, structured ETFs can make mincemeat of an unwitting buyer’s investment portfolio,” Crane wrote.
She said investors should also consider the risks of exchange traded notes, or ETNs.
With ETFs, investors are buying a slice of a portfolio managed by an investment firm. However, ETNs are credit instruments issued by financial institutions. Therefore, they are backed by the full faith and credit of an investment bank.
“So if the issuing lender goes bust, bye-bye ETN,” Crane said.
Exchange traded fund providers have been stepping up efforts to differentiate their products from ETNs. [ETF Providers Call for More Transparency]