ETF Specialist

Better Labeling for ETPs Long Overdue

Ben Johnson, CFA

Not all exchange-traded products, or ETPs, are created equal. But oftentimes, investors unwittingly treat them as though they are. There are important differences in how different types of ETPs are structured as well as the exposures that they provide. Investors need to be aware of these differences. A recent proposal put before the SEC calls for clearer and more consistent labels for various categories of ETPs. I believe that better labeling is long overdue and would help investors to more confidently navigate the menu of more than 2,250 ETPs.

Today: ETFs + ETNs = ETPs
At present, ETPs generally fall into one of two buckets. The first contains exchange-traded funds. ETFs represent the majority of ETPs by count and the lion's share of assets. Thus, its unsurprising that "ETF" has often been used as a catchall term in much the same way that Kleenex is used to refer to all facial tissue. Most ETFs are mutual funds, subject to the same rules and regulations as traditional mutual funds. A handful, including the granddaddy of them all,  SPDR S&P 500 ETF (SPY), are unit investment trusts. Others, mainly those that invest in commodities, are structured as grantor trusts. In all cases, irrespective of their structure, these various types of funds are currently referred to as ETFs.

Ben Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.