‘ETFs are sharp tool that could harm unwary investors’

The company’s multi- manager funds, run by John Husselbee of North Investment Partners, hold ETFs from Lyxor and Barclays Global Investors’ iShares range.

City Financial believes they are useful in an environment where bull markets may have ended and stockmarkets move sideways, as they allow investors to be more nimble. It says another benefit of ETFs to retail investors is that they allow access to trends or asset classes that are difficult to get exposure to.

An example is the inflation being generated by rising energy and food prices. Investors may not know how to access this trend and may consider direct investments in food producers but agriculture ETFs may provide a simpler and efficient way.

But the multi-manager warns that ETFs are sophisticated investment tools that could cause problems for inexperienced investors who buy them from stockbrokers without knowing how to use them properly. It points out that retail investors who buy ETFs have to pay trading commission to stockbrokers whereas institutional investors are better placed to negotiate the costs.

Chief executive Andrew Williams says: “The ETF is a very sharp knife, so if an investor was to buy one ETF or a specific ETF, he or she could end up in difficulties. Having a professional fund manager to use it as one of the tools in the toolkit is more effective.”

City Financial has announced that former AWD Chase de Vere and Charcol Holden Meehan IFA Graham Hooper has joined the company as joint head of distribution.

Williams says: “Graham has a long history in the IFA marketplace and has a pretty fundamental understanding of what IFAs are looking for.

“He did a lot of work with Midas, a company we look at with admiration, and we are looking forward to working with him.”