Smith: ETFs the next mis-selling scandal?

ETFs NEXT MIS-SELLING SCANDAL?

Terry Smith, founder of Fundsmith, warns ETFs face a range of problems from potentially misleading investors to exposing buyers to counterparty risk.

On 11 January I published my first annual letter to the holders of the Fundsmith Equity fund. In it I levelled some criticisms at the investment fad for exchange traded funds (ETFs). One of my basic concerns was I thought there was a danger of ETFs being mis-sold. I suspect a lot of retail investors think ETFs are the same as index funds. Some of them are, but many are not. In particular, the performance of short ETFs and leveraged ETFs may diverge markedly from what an investor who believes they are simply index funds would expect. It is not hard to give examples in which investors w...