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ETF Introduction
Information
ETF literally means Exchange Traded Funds. This is a kind of fund in name, but it is an investment instrument tracking the performance of specific indexes in the exchanges. This instrument is listed on the Stock Exchange for trading.
Features and Advantages of ETF
- Return on investment is congruent with the indexes
ETF replicates index stocks. Therefore, it has the advantage of having the similar return as the indexes. - Low transaction cost
ETF does not require a fund manager and a research team to manage the portfolio. Therefore, the management fee is relatively low. In addition, as the stock components of the index are relatively stable, costs from the frequent trade of individual stocks such as taxes and service charges are effectively reduced. - Participation in global investment
ETF covers equity, bond markets and all industries worldwide making it possible for investors to achieve global asset allocation. - Diversification of investment portfolios
ETF can track the complete portfolio of the target index, thus is efficient in diversifying its investment. - High transparency
The investment portfolio of ETF is identical to the portfolio of the index. Investments are transparent and unlikely to be affected by human factors. - Passive Management
This is an instrument traded the same way as stocks with the objective of tracking specific indexes. It is traded on securities exchanges. - High liquidity
ETF trade is conducted in renowned securities exchanges worldwide like the NYSE. Trade time is flexible and trade volume is often high. Therefore, liquidity of ETF is high and trade can be conducted conveniently.
Types of ETF
- Tracking Type
This type of ETF tracks specific indexes, including stock indexes (Dow Jones Industrial Index Fund, NASDAQ 100 index fund, or S&P 500 fund), industry indexes (semiconductor index funds, financial index fund), and country indexes (US Index Fund, MSCI of the UK). This type of ETF tracks the target indexes through replication or sampling. When the components or proportion of the linked index changes, the manager will adjust the portfolio of the ETF by adjusting the component stocks or weight. Adjustment is usually made at regular intervals, not as contrasted with the frequent adjustment of funds. - Basket Type
This type of ETF is less changeable in its portfolio. Once the components are bundled in the basket, no new stock will be introduced to the same basket. Accordingly, the manager does not need to make any adjustment. Usually, this type of ETF focuses on a particular industry. If there is corporate merger or acquisition in one of the companies contained in the portfolio, the number of stocks will decrease. For example, 20 stocks would be reduced to 19 stocks in the portfolio. The acquiree will then be removed from the basket. Since this type of ETF does not track particular indexes and the component stocks in the portfolio are selected by the designers of the instrument, it is called the basket type of ETF or more commonly known as HOLDRS (Holding Company Depository Receipts).
ETF Related Information
Investors Disclaimers
- Super Yield Investments are a form of structured product and are different from the traditional forms of time deposit. Therefore, it is not a substitute for regular time deposits and is not inclusive in the extent the Central Deposit Insurance Corporation (CDIC). Investors shall assume the credit risk of HSBC as their own responsibility.
- Investment entails risk. Return of investment is determined by market situation within the term of investment or the expected time span. The underlying performance in such period may be positive or negative, which in turn will affect the return. The return of this product may fall lower than the return of time deposits covering the same period. Investors shall prepare to assume risk, and may not earn the same interest as investments otherwise with the same principal. Investors shall make independent judgment on participation in any of the investment programs cautiously with reference to their own capacity in assuming risks, investment experience, investment objectives, financial positions and related conditions (effect on legal, taxation and accounting aspects).
