US investors warned about ETN risks
More on ETFs & Trackers
- ETFs to expand beyond benchmark tracking
- Passive way ahead
- Smart beta should be considered active: Vanguard
In focus: Regulating Exchange-Traded Funds
An investor alert from the Financial Industry Regulatory Authority, warned investors to be wary of credit and market risk and a provider’s potential conflict of interest.
Gerri Walsh, vice-president of investor education for Finra, said investors should understand that an ETN’s market price can deviate, sometimes significantly, from its indicative value.
She added that if the ETN is trading at a significant premium to its closing or intraday indicative value, investors might want to consider similar products that are not trading at a premium.
Finra has also published a checklist highlighting issues of credit, market, liquidity and price tracking risk.
Ms Walsh said: “ETNs are complex products and can carry a raft of risks. Investors considering ETNs should only invest if they are confident the ETN can help them meet their investment objectives and they fully understand and are comfortable with the risks.”
Exchange traded products were put under the spotlight in 2011 after reports by the FSA, the Bank of England and the Financial Stability Board. The regulators warned about synthetic ETFs that use derivatives to replicate indices or price movements.