In some respects such reticence is understandable. New products are often poorly understood, in part because the people selling them don’t always do a great job of explaining how they work and what they’re good for. That leaves them easy meat for an investment media that prefers bad news stories to good ones. Even well established products can suffer this way; it only took one scandal – split caps – to put punters off investment trusts for many years.
ETFs are going through a similar identity crisis. Spats a few years back between providers over the relative risks of synthetic versus physically ETFs proved ill-judged and bad for everyone – retail investors simply decided that all of them were far too risky, a view seemingly reinforced by the FSA which left a lingering bad smell when it voiced a concern that they may not all be suitable for retail investors.
Some believe that ETFs' image problem has been compounded by the fact that this is a rather faceless industry - because when making buying decisions people often like to put a face to a name. Active managers may frequently underperform, but retail investors keep buying their products, partly because there’s someone there peddling a story, even if it’s IFAs doing so on their behalf. In that respect, ETFs could do with a hero – someone like John Bogle, for instance, who has popularised a similar type of product, index trackers, over the past 40 years.
Yet the 15 year history of ETFs is hardly a short one, either, and we think these products have already come of age to allow investors to gain all sorts of exposures, inexpensively. Certainly professional investors have recognised the advantages and embraced ETFs – that's reflected in the fact that 30 to 40 per cent of equity volumes are now ETF related, according to Yogesh Dewan at wealth manager Hassiam. For those still undecided on the benefits of these useful products, this week’s cover feature explodes the many myths surrounding them.
ETF’s are just one way that investing is changing for the better, so we obviously need to change with it. That's why we're introducing a new fortnightly strategy page from this week. Written by our trading expert and CFA charterholder, Dominic Picarda, 'Market Tactics' highlights methodologies that aim to help you beat the market without taking on massive risks or costs. ETFs are a good way to play many of the index strategies he outlines, and Dominic will be complementing this feature by developing a series of asset allocation strategies in due course.
Some investment trends never die, though, and dividends are as in fashion as they ever were. So, having tested the concept online, we're adding another new column this issue, Dividend of the Week. We hope you enjoy these new features.
