Why can’t I buy that new Ark ETF?
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You can read as much as you like about the meteoric returns that have been enjoyed by investors in the Ark suite of exchange traded funds, but if you live outside the US you will find it difficult to buy them.
However, the Ark ETFs’ scarcity on sales channels outside the US is not unusual.
Although part of the attraction of ETFs is the fact that they are listed and can be traded whenever the market is open, just like any stock, they are also regulated investment products. This means they can be difficult to acquire if you do not live in the same country or region as the one where the ETF is listed.
Europeans, for example, have had a wide choice of ETFs that invest according to environmental, social and governance principles due to favourable regulatory incentives, but their US counterparts have had to wait longer for providers to start rolling out a decent range of ESG funds.
How to search for an ETF
Bella Caridade-Ferreira, chief executive of Fundscape, said she would first advise an investor to ensure they were using a suitable brokerage or platform. Fundscape has created a tool called comparetheplatform.com to help to compare fees and other costs on platforms aimed at UK-based investors. There are a growing number of apps that offer similar services in the UK.
Globally, intermediaries include banks, brokerages and investment advisers, as well as dedicated platforms and apps. Caridade-Ferreira advises checking for hidden costs such as on bid-offer spreads.
After you have selected your “shop”, the next step is to see if it will provide your ETF. Try searching for the name or ticker of the ETF and the name of your chosen brokerage, platform or app.
Reasons why an ETF might not be available
If you cannot find an ETF on your usual investment platform there could be a good reason for that.
While there might be strong demand it could be that the provider has decided not to go through the time and expense that would be required to satisfy local regulatory requirements, even though it would be possible to do so.
Alternatively, the ETF provider might have taken the view that the ETF would fail to meet regulatory requirements in the new jurisdiction.
Finally, it could be that the ETF is available in your jurisdiction, but the distribution platform you are using does not to list it because that platform has decided it is not suitable for retail investors. This last possibility is why you are often asked to declare if you are a retail or institutional investor before you can access some investment sites.
Why is my platform not listing the ETF?
“We firmly believe in protecting investors and helping them reach good outcomes, and so higher risk ETFs, such as those with a recommended holding period of only one day or that are more than two times leveraged, are assessed on a case-by-case basis,” said Alex Lambert, external relations manager at Hargreaves Lansdown, one of the longest established UK investment platforms. “If an ETF in this group is added, it is marked as a complex product and clients would need to complete a complex products questionnaire before buying,” Lambert said.
In addition, Hargreaves Lansdown only looks at products that satisfy EU legislation on packaged retail and insurance-based investment products (Priips) by publishing what is known as a key information document (KID).
Matt Brennan, head of passive portfolios at AJ Bell, another UK platform, said it lists more than 1,000 ETFs on its site but also curates from that number about 30-40 ETFs, which it considers to be best in class and most suitable for retail investors.
“It’s about being very conservative in what you do,” said Brennan, adding that for European-domiciled investors “if it hasn’t got Ucits in the name, don’t buy it”. The Ucits name indicates it has satisfied EU regulations for retail investment funds.
What risks do I face if I can find an offshore ETF?
The first and most obvious risk is currency risk. If the ETF is listed in another currency you are exposed to exchange rate risk and the cost of FX transactions.
A basic thumb rule could be derived from Brennan’s advice for UK-based investors, when he said they should ask themselves: “If it’s not in sterling, why is it not?”
In addition, the buyer might lose tax advantages on gains or dividends. Locally domiciled funds have different tax treatments to offshore funds.
Regulatory risks abound. Non-US buyers of US domiciled funds could find themselves subject to onerous US reporting requirements such as those imposed by the Foreign Account Tax Compliant Act (Fatca) in 2010.
There are many additional risks, and some that are country specific. But, broadly, with providers keen to expand markets, industry figures say it is usually possible to find a locally domiciled version of most popular broad-based ETFs. If the ETF you seek has a narrow investment objective, there are many other reasons why it might be wise to steer clear, even if the ETF seems wildly popular.