The exchange-traded fund industry was dealt a further blow yesterday with the publication of a Skandia survey which found that some 80 per cent of UK advisors share the Financial Stability Board’s concerns over these investment vehicles.

In recent times several UK bodies have voiced concerns over ETFs, including the Financial Policy Committee, Bank of England, Financial Services Authority and Serious Fraud Office. These range from assertions that they may be too difficult for investors to properly understand to worries about counterparty risk in the case of synthetic ETFs. In this latter case, worries centre on the fact that the asset swaps used to produce synthetic ETFs create both exposure to the risk of bank defaults and systemic risk.

The advisors surveyed by Skandia certainly seem very sceptical of ETFs if their investments on behalf of clients are anything to go by: 46 of respondents said that they had not used ETFs for any clients, and of those who had, three-quarters said they had only used them for a small proportion of their client base (10 per cent or less).

“Not all ETFs are the same. Some ‘vanilla’ ETFs invest in the underlying index they are tracking, the assets are ring-fenced, and there are clear advantages to holding a transparent, low cost investment. It is the ‘synthetic’ ETFs that are causing the real concern,” said Graham Bentley of Skandia.

“Given the rapid growth in ETFs and the counterparty risk involved, it is not surprising that the regulatory bodies are heavily scrutinising the ETF market. Lessons from the past are at the forefront of their minds, and preventing another financial meltdown will be a priority.”

It is not just in the UK that scepticism over ETFs is growing: earlier this week the European Securities and Markets Authority warned in a new consultation paper that it may introduce measures to restrict the availability of ETFs to retail investors, expressing doubts that the current regulatory requirements are sufficient for UCITS ETFs and structured UCITS funds.