Remember Ostriches

Under-siege ETF issuers might remember that there’s no such thing as bad publicity.

Global ETF assets are approaching US$1.5 trillion, well on the way to Debbie Fuhr’s long-standing target of US$2 trillion.  But there must be a gnawing concern amongst exchange-traded fund providers that the going is getting tougher, given the deluge of negative press coverage that’s come their way in recent weeks and months.

Even the UK’s middle market, mass-circulation tabloid, the Daily Mail, has taken a break from its usual diet of celebrity gossip and immigration scares to run an ETF risk story (“Alluring but dangerous..the truth about ETFs”). Things are clearly getting serious.  Could this be the high point of the ETF industry’s growth trend?

Strangely enough, the recent risk warnings in the press may not be as bad for ETFs as it might seem.

I’m reliably informed that the largest-ever audience feedback figures for the BBC’s Money Box consumer finance radio programme, which has been running since the 1970s, came when the programme’s then-presenter, Alison Mitchell, ran a piece in the mid-1990s about the dangers of the ostrich farming craze.

Remember that one? “You can have the financial benefits of farming without having to put your wellies on,” said one former British television newsreader, lured into promoting ostriches as an investment. “What are you going to do? Stick your head in the sand and wait until it goes away?” ran her sales pitch.

Another ostrich promoter latched onto the risks of mad cow disease, predicting that we’d all be eating bird rather than beef in the future.

Ostrich farming did turn out to be a scam, after all, of course.  Here’s one of the stories of the time.

But what did the BBC find when it warned the general public that schemes sold as “Ostrich-Nest Egg” might not be all they appeared?

Listeners dialled in not to ask how to report their nearest ponzi scheme operator to the financial authorities, but overwhelmingly to find out how they could get a piece of the action!

I should clarify at this point that I don’t think investing in ETFs resembles buying a share in a South Wales bird farm.  And, as I wrote last week, in my opinion the risk comparisons between ETFs and CDOs have been over-egged (sorry).

But given that the worthy debates over short-selling, securities lending and collateral risks in ETFs are still going to be going on in a few months’ time, and probably next year too and the year after, perhaps it’s time for exchange-traded fund issuers to start preparing for a summer break.

After all, if ostrich mania is anything to go by, they may find that their funds have attracted plenty of new investors by the time they return in the autumn.