Research* amongst IFAs by Legal & General Investments, the UK's largest provider of retail index mutual funds**, shows that seven in ten (69%) advisers are concerned about the counterparty risks associated with derivative based index funds and Exchange Traded Funds (ETFs).
The research found that, when asked about the counterparty risks associated with the products, two fifths (40%) said they were very concerned with an additional 29% expressing that they were slightly concerned. In addition, six in ten advisers (62%) expressed concern over the counterparty risks associated with stock lending programs.
Simon Ellis, Managing Director of Legal & General Investments, said: "There is a lack of clarity surrounding the counterparty arrangements involved both in derivative based indexing strategies and stock lending programs and this is clearly a concern amongst IFAs."
"Given the complexity of these arrangements and the underlying risks involved, it is understandable that some advisers are worried. At Legal & General Investments, we offer a broad range of index funds which aim to invest directly in physical securities wherever possible and we choose not to engage in stock lending. Given our size as the UK's largest provider of retail index mutual funds, we are able to take advantage of significant economies of scale and when combined with our huge experience in managing index funds, we are able to continue to offer simple low cost, high quality and transparent passive products to our customers."
Simon Ellis,
Managing Director, Legal & General Investments
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