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If an investor buys an ETF, typically, he is buying a basket of stocks. Those stocks are being held by the sponsor of the ETF. What happens if the sponsor of the ETF, sells those stocks and then disappears. Does the investor lose?

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    Sponsor? Do you mean custodian?
    – Nayuki
    Jan 23 at 4:21
  • @Nayuki we can safely assume it is the case. Jan 23 at 14:48

2 Answers 2

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What happens if the sponsor of the ETF, sells those stocks and then disappears. Does the investor lose?

Yes. This is no different from buying a company stock where the company CEO sells all the assets and pockets the money disappearing.

Obviously, it's easier said than done in reality since publicly traded securities go through stringent listing process and have numerous safeguards against fraud enforced by regulatory oversight.

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Part of the due diligence before buying into a fund should be deciding whether you trust the folks running it. Most are run by major banks or investment houses who can be trusted to operate honestly per the terms of the fund.

Pick a fund operated by someone you consider trustworthy. Or, if you do anything else, accept that you are at risk.

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    "per the terms of the fund" is the KEY part. Read the bloody fine print. If it references any external document, demand a copy of those. Don't let them reply with "you can get it yourself" Jan 23 at 14:52
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    This is why prospectuses (prospecti?) exist. They may or may not be complete, but they are supposed to answer at least the essential questions about what the fund will and will not do. I did read mine, some time ago...
    – keshlam
    Jan 23 at 15:13

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