City veteran Terry Smith has launched another attack on the exchange-traded fund (ETF) industry after highlighting potential mis-selling.

Smith warning of the effect of compounding on levered and short strategy ETPs, also highlighted the practice by some providers of holding swap contracts instead of the underlying assets.

He said counterparty risk and collateralisation could be an issue as a result.

Smith added, 'An ETF is in effect a hybrid vehicle which combines features of an open-ended or mutual fund with those of a closed-end fund.

'They are like open-ended funds insofar as a purchaser buys or redeems so-called creation units. But they are also tradable in the secondary market, so ostensibly providing real time liquidity.'