Are ETFs risky?

Linton

I understand that if an OEIC fund manager goes bust the fund can carry on under a new manager with little risk to investors' money. What about ETFs? Are they subject to the same regulation separating fund manager's assets and assets being invested? What about those with synthetic replication? Is there serious counterparty risk? Next time round there may be much less of a reliance on "too big to fail" .

grey_gym_sock

synthetic ETFs have extra risks. personally, i would avoid them.

physical ETFs have basically the same risks as OEICs and unit trusts.

Sam_J12

Agree 100% with ggs above.

I don't really understand what you mean by a fund manager "going bust". Do you mean personally filing for bankruptcy?

Linton

Sam_J12 wrote: »

Agree 100% with ggs above.

I don't really understand what you mean by a fund manager "going bust". Do you mean personally filing for bankruptcy?

I mean the fund management company that issues the ETF. Some ETF issuers are also major OEIC/Unit trust managers. Ohers are more obscure. So if an obscure issuer of an ETF synthetically replicated by swaps with someone else goes bust, what happens to the ETF?

Sam_J12

Right. In that case no idea! I get the feeling you probably won't get a great answer here either.

grey_gym_sock

Linton wrote: »

So if an obscure issuer of an ETF synthetically replicated by swaps with someone else goes bust, what happens to the ETF?

it doesn't matter so much if the issuer goes bust - it's the counter-party for the swaps that you want to stay solvent. your assets are separate from the issuer's assets, as with OEICs.

murmeltier

Worth a read (five years old, but most of it should still be relevant):

http://europe.etf.com/europe/sections/features-a-news/7629-a-swap-based-etf-checklist.html?fullart=1&start=2

grey_gym_sock

murmeltier wrote: »

Worth a read (five years old, but most of it should still be relevant):

http://europe.etf.com/europe/sections/features-a-news/7629-a-swap-based-etf-checklist.html?fullart=1&start=2

and if that doesn't scare you off synthetic ETFs ...

Linton

Thanks for that. It looks like a nightmare. Come the next great crash would the collateral actually be worth sufficient to cover ones investments? I think I will follow ggs and stay well clear of synthetic replications.

Malthusian

I also avoid synthetic ETFs unless it is something that is impractical for a fund manager to hold physically. And as the only things that are impractical to hold physically are barrels of oil and other commodities, and I don't gamble my money on a delusion that I'm a genius commodities trader, I don't buy synthetic ETFs.

Glen_Clark

I also avoid synthetic ETFs, using only those with physical assets (I hold Vanguard and Black Rock, the world's 2 biggest)
I read somewhere it might take a bit longer to sell an ETF than other shares in some market conditions, because it involves traders swopping shares rather than simply selling them. In that time the price could move either way - a problem for high frequency traders. But since I intend to hold for the long term, and don't attempt to time the market, that isn't a problem for me.