In September, Kweku Adoboli, a trader at UBS, was arrested over an alleged fraud that led to a $2 loss. Following the arrest, there was justifiable shock across the industry. But, as David Wigan discovers, the accusations of fraud exacerbate existing concerns over the growth of the once pedestrian and innocuous asset class that is exchange-traded funds.
Exchange traded products are the investment
industry’s answer to the unpredictability and
expense of traditional fund management. Combining the
simplicity of single stocks with the latest index-tracking
technology they are the investment success story of the past 20
years, growing from nothing in 1990 to over 2,000 products
globally today, worth more than $1.2 trillion.
For advocates, ETFs are a panacea, offering
a high degree of flexibility with transparency evidenced by the
frequent publication of holdings, often on a daily basis. They
offer a variety of financial exposures, from specific stocks or
sectors to unusual geographic locations and illiquid
securities. In short, they are a perfect diversification
vehicle and the shiny one-stop solution for the convenience
investor of the 21st century.
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