Exchange Traded Funds, or ETFs, like many other “investment vehicles” out there, were originally designed with good intent to benefit the individual investor. They were simple baskets of products, like mutual funds, but usually offered with less internal fees than mutual funds, and traded more liquidly on the exchanges like stocks. They were essentially easier to trade and cheaper forms of mutual funds. But, like the majority of every other “product” Wall Street offers, they are now being split, cut, stretched and repackaged as fancier versions of their former selves, along with the increased costs and risks that go along with that repackaging. This article, by Matt Krantz of USA TODAY, is a great place to start your education on these fancy structured ETFs, and the added risks they incorporate. Pay close attention to the quote by David Massey, the president of the North American Securities Administrators Association, in the second paragraph.
“ETFs hold overlooked risks for investors, regulator says.” USA TODAY
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