"Weird ice cream flavors have in recent years spread like mad and now include such inviting types as raw horseflesh or sardines and brandy. Is something similar happening in the world of ETFs, or Exchange Traded Funds?
Mario Draghi, chairman of the Financial Stability Board, hinted as much last week. On Monday, the FSB delivered a more detailed report on the matter, noting that these once “plain vanilla” investment products have taken a “disquieting” turn and have tacked on “new elements of complexity and opacity.”
The new flavors of ETFs pose new challenges regarding counterparty and collateral risks and could even cause liquidity problems for large asset managers and banks, the FSB said. That’s rather a mouthful compared to the original idea of ETFs, which, as the FSB notes, was to add some flexibility and cost-efficiency on top of the diversification benefits that standard mutual funds already offered.
To be sure, ETFs have been under a constant barrage of criticism from John Bogle, the legendary founder of Vanguard and the investor of index funds..."
at http://blogs.wsj.com/economics/2011/04/14/could-etfs-become-the-next-toxic-assets/?mod=WSJBlog
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