Any other business | 4 June 2011

There’s always another disaster waiting to happen – so keep your eye on ETFs

If we learned anything from the recent financial crisis, it is that when a thing looks too good to be true, it is. If a sector is attracting frenzied investor attention and pundits say spectacular
growth must continue, it is surely heading for trouble — not next week, perhaps, but soon enough to allow a minority of sceptics to say ‘I told you so’. In markets, good ideas
pursued to extremes mutate into disasters and, at any given moment, someone somewhere is concocting the next one.

And so I draw your attention to Exchange Traded Funds, or ETFs. These instruments — the prototype of which, the Standard & Poor’s Depositary Receipt or ‘Spider’, was
launched in 1993 — are akin to index or tracker funds, except that as the name suggests they are traded on exchanges where their prices move from minute to minute.