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However, ETFs are an efficient way of gaining exposure to a strategy idea she added. Ms Bryant, fund manager of the European Portfolio at New Star Asset Management said, ETFs are a useful way to gain exposure where there may not be a way through a conventional fund.

She said: "Although ETFs are very useful to portfolio construction, they are not perfect. We have occasionally had difficulty in placing large orders in certain ETFs even though the underlying instrument was very liquid, which should not happen in theory.

"In this circumstance, the spread you are required to pay may result in the investment looking less attractive than it would otherwise have done.

"It is also sometimes the case that an ETF does not perform in exactly the same way as the underlying index which is undesirable if you have bought it to replicate that exposure."

Justin Urquhart Stewart, co-founder of multi-managers Seven Investment Management, said the way the fund behaves depends on the ETF.

He said: "What replicates the index precisely, will precisely replicate the ETF. Those that are selective, for example an emerging markets index, what you find is that the ETFs can't replicate the entire index because it is too broad. So they will take selective elements of it. It depends on who does your ETF selection. Good active asset managers should be able to out perform their benchmark after costs.

Mr Stewart said ETFs were invented in California, when: "A lot of active managers were getting lazy and providing a second rate service for a higher cost. ETFs can make active managers better, there will be less of them, but they will more effective."

Ms Bryant added that ETFs provide an efficient way of gaining exposure to a strategy idea where there may not be a way of gaining pure exposure through a conventional fund. The asset manager has taken a variety of positions using ETFs, including in single country indices, commodities, style and sector indices.

She concluded: "Firstly ETFs enable us to take a short term position in a particular strategy idea where we see a trading opportunity. For example we bought S&P housebuilders in November 2007 and only held this for a month, before taking profits in December 2007."