The rapid growth of the ETF industry and increasing complexity
of exchange-traded products have created the need for more
intensive education efforts to ensure that investors know what
they're getting, IndexUniverse.com Publisher Jim Wiandt told
Wiandt's comments come at a time when the ETF industry is facing
criticism from different pockets of the investment industry.
Earlier this month, for example, the Kansas City, Mo.-based
Kauffman Foundation argued that ETFs are hurting the IPO market for
small start-up companies, and that unless regulators made changes,
ETFs, and not high-frequency trading, could trigger another "flash
"I think it's nonsense, most likely," Wiandt told
MarketWatch.com reporter Alistair Barr, sharing his views on what
might have triggered the flash crash on May 6, when, in less than
30 minutes, the Dow Jones industrial average plummeted almost 1,000
points before recouping a bit more than half of those losses. About
70 percent of all the securities that suffered broken trades that
day were ETFs.
"I think it's a market structure issue. I hate to lay it at the
feet of regulators, but I will to some degree," Wiandt said.
"Emphasis on speed, at the expense of everything else ... has
Wiandt said that about a third of all U.S. equity trades now
involve ETFs, noting that in itself didn't worry him.
"In terms of people not understanding what these products do, I
am worried about that. Product development and complexity have
overrun the education process," he said.
He specifically singled out leveraged products and those that
give investors exposure to commodities. Leveraged products double
or triple daily returns on a given index, making them appropriate
for only the most savvy investors. Commodities products based on
futures, meanwhile, subject investors to the vagaries of variables
such as contango, a condition when spot prices are lower than
futures prices that can seriously detract from returns.
Overall, Wiandt characterized the sometimes-critical comments
focused on exchange-traded products as growing pains and emblematic
of how important ETFs and ETNs have become to financial
"Over the last year, you've seen a lot of attacks on ETFs and
exchange-traded products. I think that probably has to do with the
fact they've gotten so big and gotten attention," Wiandt said,
adding that the flash crash and the central role ETFs played that
day added to the attention.
The first ETF, the SPDR S&P 500 ETF (NYSEArca:SPY) was
launched in 1993, and assets in U.S. ETFs are likely to reach the
$1 trillion milestone soon, perhaps by the end of this year. ETF
assets totaled $942.3 billion as of Nov. 17, according to data
compiled by IndexUniverse.com. By comparison, assets in U.S. mutual
funds are about $11 trillion.
Don't forget to check IndexUniverse.com's ETF Data
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