ETFs that Track an Index

This article was originally published in the Investment Funds Practitioner in April 2012.

A wide range of exchange-traded funds (ETFs) propose to track specified indices. In some cases, the index has been created specifically for the fund and is, therefore, not widely used or recognized.

In a recent filing for new ETFs,  staff advised the fund manager that it was not sufficient for the investment objectives to merely state that the fund aimed to replicate the performance of the specified index, without stating the primary asset composition and key features of the fund under normal market conditions. We also confirmed our view that the investment strategies section of the fund’s prospectus had to sufficiently describe each index, to state the key factors in determining which securities form part of each index and where the public can access the composition of each index at any given point in time.