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ETF Specialist

Time for Derivative ETFs to Comply

Exchange-traded funds using derivatives should comply to the same standards as derivatives.

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Financial innovation always has unintended consequences. As good as an idea may be for some investors, the suitability of that idea may not always carry for the majority. This is especially true when you consider the individual investor and the occasional need to protect them--and their assets--from products that they do not understand.

In the beginning, ETFs were fairly straightforward products. Investors bought a fund--whether it was a broad basket, a specific sector, or even a single country--and they more or less understood what they were getting into. Investors could see the holdings and the returns that they experienced were usually in line with their expectations. That is, the odds of an investor having an unexpected adverse investing experience was minimal. If large-cap stocks rose during the week, the S&P-500-tracking  SPDRs (SPY) was up for the week.

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Scott Burns does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.