The US Securities and Exchange Commission has issued an investor bulletin on exchange-traded funds, designed to raise investor awareness of the ETFs, how they trade and the differences and risks associated with the various products on offer to US investors.

The bulletin applies only to ETFs that are registered as open-end investment companies or unit investment trusts under the Investment Company Act of 1940. It does not address other types of exchange-traded products that are not registered under the 1940 Act, such as exchange-traded commodity funds or exchange-traded notes.

The bulletin says: “Certain ETFs can be relatively easy to understand. Other ETFs may have unusual investment objectives or use complex investment strategies that may be more difficult to understand and fit into an investor’s investment portfolio. For example,“leveraged ETFs” seek to achieve performance equal to a multiple of an index after fees and expenses. These ETFs seek to achieve their investment objective on a daily basis only, potentially making them unsuitable for long-term investors.

“Do not invest in something that you do not understand. If you cannot explain the investment opportunity in a few words and in an understandable way, you may need to reconsider the potential investment.

“Finally, you may wish to consider seeking the advice of an investment professional. If you do, be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment professional should understand complex products and be able to explain to your satisfaction whether or how they fit with your objectives.”