ETF risk of bankrupt

Investing / Portfolios
1

hi !

… a question about the investment risks in ETFs…

let’s take an exemple: if I invest in a Vanguard ETF and that Vanguard goes bankrupt, what happens to my investment? as ETF is a financial product, do I loose all my investment ?

now, in a same situation of bankrupt, but having invested in stocks through IBKR for exemple; if IBKR goes bankrupt, my stocks keeps mine as I am a shareholder. I would loose my cash but not my stocks. sounds safer in my opinion, isn’t it?

do you know if the principle is the same with ETFs? if I own a part of it, do I also own a part of every stocks constituing the ETF as a shareholder? or my “contract” is only with Vanguard with the risk of loosing everything in case of bankrupt?

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2

The ETFis just the hull of the underlying assets. If Vanguarg goes bankrupt (close to impossible as they could just increase TER to boost earnings) your ETF will be cashed out. It’s 1000x more likely that Blackrock would buy them. We are talking about 5 trillion in assets and millions of clients.

Btw cash in IBKR is protected up to 250k per customer. Like the 100k in Switzerland.

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3

The ETF is a separate legal entity from its

  • sponsor
  • administrator
  • custodian
  • market maker
  • etc.

Should Vanguard go belly-up, the ETF they spnsored need new providers for the services that Vanguard provided. The ETF-Holdings stay with the ETF.

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4

In addition to the comments above, here an article about Vanguard & Fidelity (and others).

5

… and is it possible that this separate legal entity goes bankrupt ?

6

Possible? Sure. Very little is outright impossible. For an ETF passively investing in a major index, I don’t see, however, any probable case for it. Do you?