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Investors Shun Synthetic ETFs

Written by IU.eu Staff

  
November 22, 2011 11:32 (CET)

The spate of regulatory warnings about synthetic ETFs appears to have taken its toll, with an increasing number of investors now expressing a preference for physically-replicated funds.

Nine out of 10 investors polled in a Morningstar survey said they favoured physically-replicated ETFs, a marked increase from the 74 percent that expressed such a preference when the research group conducted its first ETF study back in September 2010.

“Despite ongoing efforts being made by providers of synthetic replication ETFs to improve the level of transpar­ency and investor protection in their product lineups, respondents remain wary of swap-based ETFs. Amongst survey participants, 90 percent expressed that they were at least somewhat concerned about counterparty risk in ETFs,” said Ben Johnson, director of European ETF research at Morningstar.

These findings are in keeping with research released recently by BlackRock, in which 65 percent of those surveyed expressed a preference for physically-replicated ETFs.

Morningstar’s survey of almost 600 UK investors, mostly individuals, also pointed to a need for further education on ETFs, with 64 percent of respondents stating a desire to learn more about the products before investing.

Around half those questioned were already active in the ETF market, with the low cost of the funds proving the biggest drawcard for both current and prospective users.

Equity-based funds were the most popular among those surveyed, while sterling was the favoured currency.


 



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