What are the Risks of European ETFs?

This study points out that the vast majority of European ETFs are managed within the UCITS framework and as such have the same levels of security and the same risks as any UCITS fund. Highlighting the supposed risks of ETFs therefore makes little sense, and even less so in matters of retail investor protection in that ETFs represent but a fraction of the products sold to the general public in Europe and competing investment vehicles typically do not benefit from the same level of protection as that provided by the UCITS framework.

As far as counterparty risk is concerned, it makes little sense to oppose physical replication and synthetic replication products on the one hand, or draw a fine line between unfunded and funded swaps on the other. Both distinctions are largely irrelevant in practice and convey a false sense of "comparative" safety. In fact, whatever the replication techniques employed, ETFs are exposed to counterparty risk.