The oldest funds that also hold most of the industry’s assets are “plain-vanilla,” passively managed portfolios designed to track major stock and bond indices. However, the business has branched out into sectors, leveraged and inverse funds that hold derivatives, actively managed funds, and other complex strategies. [Are Leveraged ETFs Too Dangerous for Investors?]
Condon points out that some of these exotic ETFs are designed for hedge funds and sophisticated traders, but can also be purchased by any individual investor with a brokerage account.
“If you make it available to the masses, watch out, because the masses might buy them,” said Morningstar’s Paul Justice in the Bloomberg article.
Not surprisingly, some providers of sophisticated ETFs think that view is too paternalistic.
“Generally, it’s good if you’re providing investors more choice and more access to institutional-class strategies,” said Adam Patti, CEO of ETF manager IndexIQ, in the story. “Why should institutions and the ultra-high-net- worth have the only access to sophisticated investment strategies?”
More choice is a good thing, but only if investors do their homework and make sure to fully understand an ETF before purchasing it.
