Do You Know The Hidden Risks of ETFs?

by Sloane Ortel, Paul Kovarsky, CFA and Antonella Puca, CFA, CIPM of the CFA Institute

Did you know that well known high yield and corporate bond ETFs materially underperformed their passive indices? How about liquidity differences between the ETF and its underlying securities?

"What can’t the client see?

ETFs are a great way to fulfill client objectives, but they also create a handful of opportunities to miss the mark. So advisers need to be vigilant.

A primary risk is that the fund will fail to appropriately track its benchmark. This can happen because of market conditions, despite the best intentions of the fund sponsors. So rather than adopting a “set it and forget it” mindset, advisers need to be diligent and monitor the ETFs in which they invest."

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Do You Know The Hidden Risks of ETFs?

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