Curious about what 'complex' means in complex exchange-traded funds (ETFs)? Here's what it means.
The ‘complex’ label is part of a naming system proposed by the Australian Securities & Investments Commission (ASIC) in 20221 to reduce confusion and help investors better understand the different types of ETF products.
In Australia, ETFs that use more intricate structures or investment strategies, such as some derivatives and leverage, are required by the ASIC to include the ‘complex’ label in their name.
The label does not necessarily imply higher risk; it simply indicates the use of more sophisticated instruments by the ETF2. For example, ‘active’ is another label under the naming system. It signifies the strategy involves active management where a portfolio manager or an investment team actively selects the securities included in the ETF.
Raising investor awareness
In summary, the ‘complex’ label prompts investors to assess their understanding of the ETF, its use of sophisticated investment strategies, and whether it aligns with their investment objectives and risk tolerance. It aims to encourage informed decision-making rather than imply inherent risk.