Ask Annie: How safe will my cash be in exotic exchange-traded funds?
Sunday 17 February 2008
Q. I am attracted to exchange-traded funds by their low cost and flexibility, but am cautious given the underperformance of other investment products such as with-profits funds and split-capital trusts.
Are there are any specific drawbacks in ETFs, other than normal stock market risk? Are the funds covered by the Financial Services Compensation Scheme? SC, Bristol
A. ETFs are a hybrid product. Like shares and investment trusts, they can be bought and sold on a stock exchange. However, they work more like a unit trust tracker fund, with their value, up or down, being tied to the fluctuations of a particular stock market index rather than the share prices of a company or group of companies.
While the first ETFs to be marketed tracked indices in developed econo- mies, including the UK and US, they now follow just about anything, from emerging markets through to various specialist sectors, precious metals and other commodities.
There are hundreds of ETFs to choose from, including Barclays' iShares, Deutsche Börse's x-trackers and Invesco PowerShares. New funds are being launched all the time.
Like trackers, ETF fees are low because the funds simply follow the moves in an index and don't require any input from a manager. There is no stamp duty to pay when buying an ETF and they can be held in an individual savings account (ISA), where growth is free of tax. You will need to use a stockbroker to buy or sell the funds, with charges typically ranging from £10 to £15 for a single trade.
Mark Dampier of independent financial adviser Hargreaves Lansdown says: "ETFs are 'passive investments' like trackers, so there is nothing inherently dangerous about them. They are as safe as any stock market – there are no catches."
Any dangers, he adds, would arise with the indices in which you are invested. For example, markets such as the Chinese FTSE/Xinhua 25 or India's Sensex can be high risk.
"Investors often don't understand exactly what their exposure is, because they don't realise the proportion that a particular share gives to various indices," says Mr Dampier. "For instance, ICICI, India's second-biggest lender, which has been hit by fallout from the US sub-prime crisis, and Reliance Industries, India's largest petrochemical firm, together account for about a quarter of the weight of the Sensex."
"So if these companies fall on hard times, they can bring the index down by more than an unwary investor might realise."
A spokesman for the Financial Services Compensation Scheme says you would not be covered for any loss you make on an ETF investment. However, if you think you have been mis-sold an ETF by a financial adviser or broker – for example, you may have been told the performance would be guaranteed – then you could take a case to the Financial Ombudsman, who can order compensation.
Q. I received some money over a year ago direct into my bank from the Pensions Annuity Friendly Society. The payment has been worrying me as I have no idea where the money has come from and I can't find any trace of this society. TJ, Basingstoke
A. Members of the mutual Pensions Annuity Friendly Society, the UK's first writer of impaired and enhanced annuities, voted for demutualisation and a management buyout in 2005, and as a result received a minimum windfall of £500. The business was rebranded Partnership Assurance, and you can check to see the reasons for your payment by calling 020 7618 2800.
- 1 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 2 How to turn off/stop 'seen by' on Facebook: Disable it to make your chats seem less passive aggressive
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 5 Buckingham Palace guard who attacked passers-by in 'most most violent piece of CCTV footage' police officer had seen walks free
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
Day In a Page
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms