Todd Douds, senior vice president of research and operations at the Fort Pitt Capital Group in Pittsburgh, says that without this education, investors could easily be caught up in the ETF boom without understanding how the products work and the risks associated with them. He specifically voiced concerns about leveraged ETFs, or funds that use financial derivatives and debt to maximize returns rather than simply mimic an index.
Leveraged ETFs "have a purpose, but investors need to do their due diligence on what they buy," Douds says. "Leveraged ETFs don't behave over the long term like most investors believe that they will."
"There's a lot of ETFs out there that are good tools in the asset-allocation process, but be very skeptical of some of the recent products that are out there," Douds says.