ETFs: a look “under the bonnet” to see how they work – Interview with Frances Groves, Author of “Exchange Traded Funds”, A Concise Guide to ETFs
Introduction, career and current work
My background is in online information services for professional subscribers, working for Reuters, the FT and LexisNexis. More recently I have become interested in providing sound information to private individuals, especially investors, something that the Internet has facilitated enormously while at the same time throwing up a number of problems such as information overload and the difficulty of verifying what one reads or hears.
Apart from writing books, one on ETFs and an earlier one on corporate actions, I spend time writing a blog about ETFs from a private investor standpoint, called ETFStall, and I do freelance work editing and researching in areas such as reputation analysis and, most recently, Internet and social media for financial institutions. My aim for 2012 is to start providing training on ETFs.
What’s your assessment on the current situation for ETFs in the European Union?
Clearly, 2011 was a bad year for European domiciled ETFs. The ETF concept suffered damage to their reputations from regulators’ disquiet about swap-based ETFs, in particular, and we can see that investors have latched on to these concerns as a result of coverage in the general media.
There was a bandwagon effect in criticising swap-based ETFs and solid information for private investors is trailing behind the experts’ debate. In particular, there has been a lot of confusion between the dangers that ETFs pose to individual investors and the threats that some regulators believe ETFs pose to the financial system as a whole. Regulators have to be concerned about these longer term dangers but private investor interest in ETFs would have to grow much more than it currently is to represent a threat to financial stability.
And, of course, we’re living through anxious times in relation to the European banking industry and most European domiciled swap-based ETFs have a single bank as their swap counterparty. In my opinion, single swap counterparties are a core concern that private ETF investors need to focus on for the next few months.
The article continues to International Alternative Investment Review – n. 1, 2012