Bringing you live news and features since 2006 

Gregg Medcraft, ASIC Commissioner

ASIC warns investors about synthetic ETFs


The Asutralian Securities and Investments Commission (ASIC) has published new information on its consumer finance website, MoneySmart, to help consumers understand the different types of Exchange Traded Funds (ETFs), and their risks.

ETFs can provide a convenient and low-cost way for investors to diversify and receive returns close to the performance of market indexes or other assets, usually with lower fees than traditional managed funds. But while standard, ‘physical’ ETFs generally invest in the underlying investments they are designed to track, ‘synthetic’ ETFs also use derivatives, such as swap agreements, to achieve similar outcomes. Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance ‘tracking error’. Downsides include increased complexity and counterparty risk.

Standard ETFs are widely available in Australia. A few synthetic ETFs are currently available in Australia and they are increasingly available overseas.

ASIC Chairman, Greg Medcraft, says: ‘ETFs are growing in popularity and people should understand the different features and risks of ETFs before investing. We want investors to be informed and confident if investing in ETFs so therefore ASIC has published clear and straight forward information at to help investors understand these products. While conventional ETFs are often relatively straight forward, there are complexities and risks to be aware of. Furthermore, the use of derivatives by synthetic ETFs creates separate additional issues for investors to consider. Either way, people should not invest in products they don’t understand.

‘ASIC is monitoring this area closely and will review thoroughly the introduction of any new types of ETFs in Australia, as some of these can be complex investments that may not be suitable for many retail investors,’ he says.

In recognition of the growing popularity of ETFs in Australia and the need to help investors understand the risks and other considerations associated with them, ASIC has started a review to identify and assess the risks associated with both standard and synthetic ETFs. The review will seek to clarify the impact of these risks to Australian investors. It is envisaged that the review will involve discussions with participants of the ETF industry in Australia.

Latest News

ETF data consultant ETFGI reports that assets invested in the global ETF industry reached a new record of USD12.71 trillion..
Calastone has published an ETF white paper which examines several of the processes that take place across the lifecycle of..
Adapting product lines to fit into changing methodologies and meet shifting demand is essential to remaining relevant in the industry..
Investors urgently need greater access to diversified investment strategies aligned with the Paris Agreement on climate change if the world..

Related Articles

Taylor Krystkowiak, Themes ETFs
Themes ETFs opened its doors in December 2023, with an introductory suite of 11 ETFs – seven thematic and four...
Konrad Sippel, Solactive
At the end of March, financial index specialist, Solactive, published its 2024 annual report on future trends.  ...
Lorraine Sereyjol-Garros, BNP Paribas
Following changes to the French Monetary and Financial Code and of the French market authority AMF’s General Regulation, it is...
Ed Rosenberg, Texas Capital
Texas Capital Bank first opened its doors back in December 1998 and nowadays offers wealth-management services, as well as commercial,...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by