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Jupiter in warning over synthetic ETF exposure

Jupiter head of independent funds John Chatfeild-Roberts says he is concerned that ETFs are being marketed as simple products when the opposite may be true.

He says investors need to be wary of synthetic exchange traded funds, believed to account for almost half the market, as not all of them perform as intended for long-term investors in particular.

Chatfeild-Roberts’ team bought its own gold ETF last year but chose the product backed by the physical asset rather than a synthetic product, taking counterparty risk out of the equation.

He says: “If we had we bought a synthetic instrument we would have been exposed to AIG, one of the world’s biggest insurers and major counterparty for synthetic ETFs, which famously became the victim of credit default swaps after Lehman Brothers collapsed.”

He says: “US regulators became so concerned about the marketing of leveraged and inverse ETFs over the summer that they issued a warning to investors, making it clear that these products reset on a daily basis. so, if investors hold them for longer than a day, they are unlikely to see the return that they expected.”

Meanwhile, Chatfeild-Roberts and his team have dipped into the technology sector with the introduction of the Henderson global technology fund into its Jupiter Merlin world-wide portfolio.

Ishares head of business development for the IFA sector Julian Hince says: “Not all ETFs are equal and investors need to understand the different structures they can come in through doing the due diligence.”

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