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Exchange Traded Funds

What are ETFs?

ETFs are open-ended, passively managed investment trading funds listed and traded on the stock exchange that mimics the performance of an asset.

Why invest in ETFs?

Trade ETFs like shares
Similar to trading stocks, you may buy or sell ETFs through your Trading Representative or on our MIB Trade Internet and mobile platforms.

Gain access to different markets and asset classes
ETF performance is benchmarked to designated asset performance such as local and regional market indexes. Investors can gain access to markets that are inaccessible in the past.

Portfolio 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.

Easy to trade
ETFs are traded products available on securities exchanges in the same way as other securities and the settlement arrangements are the same.

Low transaction cost
Some ETFs are exempted from stamp duty and their maintenance fees are generally lower than traditional mutual funds. Hence, investor gains would be maximised.

High liquidity
ETFs can be traded any time during the trading hours of the securities market. Listed ETFs usually have market makers that provide liquidity.

Complementary investment tool for Capital Investment Entrant Scheme "CIES"
Designated ETFs are recognised by the Hong Kong Immigration Department as CIES investment vehicles.

What is the risk of ETF?

Exposure to market volatility
Investors are exposed to market risk or volatility of the specific underlying which the ETF tracks. In unfavourable market conditions (e.g. market correction or economic crisis) when the general level of stock, bond or commodity prices decline, the value of ETFs will decline accordingly. Nonetheless, ETF investments will still deliver returns close to the underlying index, bonds or commodities.

Inability to replicate the performance of underlying index, bonds or commodities
The fund manager of the ETF may not be able to exactly replicate the performance of the underlying. This is known as 'tracking error'. Tracking error may occur because the methods of sampling are not 100% accurate. In addition, factors such as management fees and timing differences may reduce the returns of the ETF relative to the index returns.

Exposure to fluctuations in foreign exchange rates
When the ETF is priced in one currency (e.g. US Dollar) and is different from the functional currency of the investor (e.g. Singapore Dollar), the investor is exposed to fluctuations in foreign exchange rates, which may increase or erode investment returns on the ETF.

Interest rate risk
The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship.

Counterparty risk
Investors are exposed to counterparty risks of the Issuer/Manager of the ETFs. The insolvency or default of such counterparties may have an adverse impact on the investors' investments in the ETF.