SEC looking into misleading ETF names

Getting your Trinity Audio player ready...

There are many individuals throughout the world that have chosen to invest in an exchange-traded fund (ETF) that might hold certain stocks, commodities, or bonds. Many chose to invest in ETFs because of the lower management fees and tax efficiencies. However, there are many ETFs that appear to be targeting a certain theme or sector and even adjusting their name to reflect this new strategy. It appears as though the SEC is cracking down on this practice, as it is often used to mislead investors.

The idea is that many ETFs are simply looking to cash in on the investment trend, and some have tried to piggyback off of the increasing interest in blockchain. Other ETFs have referenced 5G technology and video games, as well. The SEC has questioned various funds that have changed their names to ensure that investors weren’t being deceived.

For those wondering how common the practice is, consider that over 10% of ETFs have targeted a theme. Thematic funds in particular have been quite successful, with the assets in the fund tripling between 2014 and 2018. Many have pointed out that the growth in the sector is much needed for ETFs in general, which have been showing signs of an overall slowdown.

Hester Peirce echoed this sentiment, stating: “Names have to match up with what the fund does.” She reiterated that the SEC can stop the fund from offering shares if they did not want to comply. For those who might not be aware, Hester Peirce is considered the “Crypto Mom” for her support of a Bitcoin ETF, which garnered her huge attention in the cryptocurrency sector.

The SEC suggested that two ETFs in particular remove “blockchain” from their name at the last minute. The two ETFs in question – Amplify and Reality Shares – ended up changing their names. The CEO of Reality Shares admitted that the name was changed to satisfy regulators, while the Amplify ETF had no formal comment about the situation.