DIY Investor Magazine
/
December 2015
53
In this short video Ben Thompson, Director of Listed Products and Lyxor ETF describes the range of Exchange Traded Funds that
are available from Lyxor, and how you could use them to build a low cost, transparent and diversified investment portfolio.
Tracking difference and tracking error are two
measures that describe how precisely and consistently
the ETF tracks its benchmark. As anything less than
the index performance is a cost to you, it is important
to look at these variables. The bid/ask spread will also
impact performance as the difference between buy
and sell price is key to your trading cost. As with any
investment product, ETFs carry a number of risks.
Most ETFs are index tracking funds, meaning the
performance of an ETF will rise and fall with the
underlying index which may be complex and/or volatile,
exposing investors to market risk. Investors’ capital is
at risk, and you may not get back the amount originally
invested.
Investors may be exposed to counter party risk
resulting from the use of securities lending in physical
ETFs, or from the use of an OTC performance swap
with an investment bank for synthetic ETFs. If the
index or the constituents of the index are denominated
in a currency different to that of the ETF, investors
are exposed to currency risk from exchange rate
fluctuations.
