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Next degeneration

Apologies in advance – this is probably going to get grumpy – but I find myself increasingly irritated by the outbreak of Nextitis currently afflicting big sections of the financial press.

Obviously, this important question of whether X is the next Y has been around for years in the mainstream press but I have become far more aware of it encroaching on the financial pages in recent months.

Is Civets the next Brics? Is Ignis the next Gartmore? Is (insert asset class of choice here) the next bubble? Is Julian the next person to need a ride in an ambulance if he sees one more headline along these lines?

The primary purpose of this sort of journalistic construction is, of course, as a shorthand way of convey-ing what should be a simple idea – and as such does not often bear the greatest scrutiny. So Civets is not the next Brics because while both are essentially marketing-based acronyms, one involves the four most important emerging economies in the world and the other really does not.

Similarly, Ignis is not the next Gartmore because while we can all agree that the former has had more enjoyable months, there has been no chunkily priced flotation, I am not aware of any FSA involvement and no senior management appears to have that awkward habit of making unguarded remarks to journalists they presumably regretted the following day.

Increasingly, however, Nextitis seems to be being used as a way of briefly flagging up the possibility of some financial disaster so that, should it come to pass, the publication can at least point to having been vaguely on the ball in the way so few could with, well, the Credit Crisis, split-capital trusts, Bernie Madoff, precipice bonds, Peter Young…

So, asking whether Tech 2.0 is the next tech bubble is a snappier although, I would like to think, less elegant way of conveying what I wrote here a couple of weeks back, yet, in this unjust world, both will score equal points for prescience should social media prove not quite the money-spinner some expect.

All of which brings me to the main cause of my agitation – are ETFs the next CDOs? Well, I snitchily wrote elsewhere, they are in so far as both are three-letter financial acronyms but suggesting something that looks to replicate, say, the all-share is on a par with one of reasons the global financial system teetered on the brink three years ago is otherwise rather pushing it.

But swiftly – although not so swiftly that I could prevent the article going to print – I reflected that the issue was a whole lot more complicated than that and, of course, could not possibly be summed up in just five words. For while the majority of exchange-traded funds are indeed the sort of tracker-type vehicle that would not dream of hurting a fly, there is the inevitable small minority of supporters of ETF FC who one could certainly envisage spoiling it for everyone.

The faction lining up with their bike chains and broken bottles at one end of the deserted retail park on the edge of town are the ETFs who borrow money to invest in the hope of enhancing returns although leverage does not always work out that way. And at the other end, with their crowbars and flick knives are the ETFs of a more synthetic – in other words, derivatives-based – nature, which brings potential problems such as volatility, unpredictability and what do you mean my counterparty went bust this morning?

Your job, of course, is to ensure your clients are not caught standing in the middle of that particular deserted retail park on the edge of town should it all kick off. I am sure all the ETFs you use are in no way synthetic and have never used leverage in your life but, then, I am not the one who needs to be sure.

Once again, we have returned to the conclusion that investors and their advisers cannot take any chances when it comes to knowing what they are getting into – and I suspect my current irritation stems from a worry that oversimplifications such as whether ETFs are the next CDOs run the risk of obscuring that simple point.

Julian Marr is editorial director of Marketing-hub.co.uk and Thought leadershiplive.com

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