Exchange-Traded Fund
Index Tracking Exchange-Traded Fund (ETF)
ETFs are funds you can buy and sell via stock exchanges, similar to buying stocks. The investment goal is to track the underlying index. This can be a stock market, a group of regional or global stock markets, or an industry sector. The index can also be bonds or commodities.
A Hang Seng Index ETF, for example, its investment objective is to track Hong Kong's Hang Seng Index.
Some ETFs track the underlying index by buying the index's stocks. Others use derivatives to do so.
ETF : Key Features
- Convenience - ETFs are traded through brokers in the same way as other securities and the settlement arrangements are the same
- Transparency - Each ETF has its own website operated by its ETF manager (a list of ETFs’ websites can be found on the HKEx website). ETFs’ websites provide key information such as the underlying benchmarks and the benchmarks’ constituents, the ETF’s Net Asset Value (NAV), the counterparty exposure and details of collateral from counterparties.
- Passive management - Passive management is a style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies and buying/selling decisions of a portfolio's securities.
- Low transaction costs - Unlike unlisted funds, ETFs do not charge any subscription fees. The transaction costs for trading ETFs at HKEx are the same as those for trading other securities, which include brokerage commission, transaction levy, investor compensation levy (currently suspended), trading fee, trading tariff and stamp duty.
- Diversification - Most ETFs track a portfolio of assets to provide diversified exposure to selected market themes. However, ETFs may also track a single underlying asset such as gold. While some ETFs provide Hong Kong investors access to a basket of Hong Kong securities, others provide the investors access to overseas markets or other asset classes
- Benchmark tracking - ETFs are passively managed funds which aim to track closely the performance of the underlying benchmarks.
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