We place a ‘high risk’ warning on any ETF/fund that we consider to be, as it says, higher risk. This is a label only, it is not a prediction by us about the expected performance of the ETF/fund.
Best ETFs Australia applies this label so that investors are aware that this ETF provides unique exposure to an asset class which can result in higher-than-average volatility.
The best example of the types of ETFs and funds that catch this warning label include:
- Hedge fund style investments. For example, those which use derivatives or shorting in the hope of making excess returns.
- Leveraged ETFs. For example, ‘geared’ funds and ETFs which use synthetic leverage (e.g. derivatives or options).
- Other trading-style ETFs/funds. This is a catch-all for ETFs and funds which aggressively trade their portfolio positions for extra returns. Such a strategy can result in higher fees, taxes for investors and sub-par returns.