SCM Direct only invests in ETFs.  We do NOT invest in any ETNs (Exchange Traded Notes) as we believe the risks associated with such products as being much too high.   SCM Direct only invests in UCITS IV ETFs for its GBP based portfolios to provide additional investor protection.

The price of the ETF depends on the value of the underlying investments and the demand for the ETF shares in the market, and the share price may therefore be at a discount or premium to the fund’s asset value.   Some ETFs are more thinly traded than others, which may affect their liquidity, especially in a market downturn.  Although ETFs normally have a low tracking error i.e. a measure of how consistently it follows its benchmark, during times of market volatility the tracking error of an ETF may increase.

The value of the investment may rise or fall in value and neither the capital nor income is guaranteed. 

Typically, ETFs try to replicate a stock market index such as the FTSE 100 or the Hang Seng Index, a market sector such as energy or technology, or a commodity such as gold or petroleum. Accordingly, if such index, sector or commodity price fluctuates, so will the value of the ETF.

There may also be a counterparty risk as some ETFs generate additional revenue by lending out some of their investments.  Similarly, some ETFs seek to achieve their objectives through the use of derivatives, which carry counterparty risk.  In either case if the counterparty defaults, the investor may see a reduced return regardless of the performance of the underlying assets.  To mitigate the counterparty risk providers or lenders post collateral by setting aside a pool of assets that the investor can claim on in the event of the issuer or lender’s default.  SCM Direct only invests in those ETFs that hold a minimum of 100% collateral posted daily.

Leveraged and Short ETFs can often be more complex financial instruments that may significantly amplify volatility and therefore risk.  For this reason, SCM Direct does not invest in any leveraged or short ETFs .

If the ETF’s underlying investments are in a currency different to the ETF’s denominated currency (i.e. portfolio exposure to Sterling but ETF denominated in Euros), there will be an additional currency risk to consider when making the investment as exchange rates may cause the value of overseas investments and the income arising from them to rise or fall.

In the case of foreign ETFs, sometimes there may be a tax advantage by opting to invest in an international portfolio. Tax laws vary from country to country, so it may be beneficial for your tax return to find other foreign investments. Tax is subject to change, which could affect your investment in the future.