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Is it time to put a food-style label on investment products?
Much like the food people eat, investors are being told they need to know what they are buying before purchasing exchange-traded products, as many are unaware of the ramifications if they don’t.
Is it time to put a food-style label on investment products?
Much like the food people eat, investors are being told they need to know what they are buying before purchasing exchange-traded products, as many are unaware of the ramifications if they don’t.
Blackrock Australia’s head of iShares ETF, Christian Obrist, explained that just like the food industry that was forced to put labels on products, ETP providers should be forced into stricter classifications.
“ETFs have typically been used as that catch-all. Thinking locally, you’ve seen a surge of money going into levered and inverse products,” Mr Obrist said.
“When you think of retail investors, which Australia has a high percentage of personal investors and for [Blackrock] it is important they know what they are buying.
“The danger is everything gets canvas as an ETF or an exchange-traded fund when in fact there are many different expressions,” he said.
The ETF provider explained that many of these products that are being listed as ETFs are not, instead performing different functions for sophisticated investors.
“In fact, a lot of products that have been listed on an exchange have been categorised as an ETF.”
“Whether that is an exchange-traded note, which is really a debt security issued by a corporate entity, or an exchange-traded commodity, could be physical, could be synthetic.
“Again, very different risk profile and also very different investment objective,” Mr Obrist told the media.
While highlighting that Blackrock is not against the use of other types of exchange-traded products, the ETF provider pointed out they need to be used correctly, otherwise investors could lose.
“The reality shows us these products typically work in a short-term manner if you execute, but if you hold longer, they decay in value, Mr Obrist concluded.
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