Editorial: ETFs are not derivatives

There are very few certainties in the financial markets, particularly when you are dealing in derivatives, but one truth that will always affect structured products is that exchange-traded funds (ETFs) are not derivatives. Newswires sometimes write stories on subjects – such as derivatives – that they plainly do not understand and lean on quotations from an ‘expert’ to persuade readers that what they have said is correct.

The fat-finger inspired sell-off in equity markets in the first week of May, something that especially affected the US equity markets, saw a big movement away from ETFs, resulting in alarming statements suggesting ETFs are the new derivatives.

Initially the darling of retail, and now the plaything of institutional investors in the US, ETFs were loved for their simplicity and transparency. When the credit crisis hit and major banks were finally permitted to go bankrupt, ETFs held their own. The