Market commentators and regulators are taking a closer look at exchange traded funds and notes as the products become a more integral part of the financial-market landscape.
The main concerns are that exchange traded products could be exacerbating market volatility, and that unsuspecting individual investors may end up burning themselves with increasingly complex ETFs.
The bottom line for investors is simple: If you don’t completely understand how an ETF works, then don’t buy it. [ETNs are Not ETFs]
“I don’t care if it’s a single stock ETF or some crazy warrant that trades in Hong Kong,” said James Ross, head of State Street’s ETF business, in a Bloomberg News report Thursday. “If you are hitting a button to buy a product and don’t understand it, you probably should stop.”
Talented Bloomberg reporter Christopher Condon does yeoman’s work here in an exhaustive and well-researched overview of the history of the business and some important risks for ETF and ETN investors. It should be required reading for investors who are new to these products or are considering using them.
In fact, more mutual-fund investors appear to making the switch to ETFs. U.S. investors added $4.82 to exchange traded products last year for every $1 they deposited with mutual funds, according to the report. There are more than 1,400 exchange traded products, or ETPs, on the market.