ETF beginner guide: What are ETFs?
ETF 101
What are ETFs?
Exchange-traded Funds (also known as ETFs) are the types of fund that holds multiple underlying assets, making it a great way for investors to gain exposure to a pool of investments without the need to buy each one individually. ETFs can be structured to track anything from a particular index like the FTSE 100 to market performance, and from sector, commodity, to other asset, such as government bonds.
Considered as “passive” investments, ETFs attempt to track the performance of a market index or pool of investments rather than trying to beat the index. Investors will experience a similar return or loss as the index tracked. When money is invested in an ETF, new shares will be issued. When money is withdrawn from the ETF, units will be redeemed. The ability of an ETF to create and redeem shares keeps the market price of ETFs in line with their underlying assets. ETFs can be purchased or sold on a stock exchange like a regular stock.
Most Popular ETFs: HK ETFs and US ETFs
Popular Hong Kong ETFs
- Tracker Fund of Hong Kong Ltd（02800): designed to provide investment results that closely replicate the performance of the Hang Seng Index
- CAM CSI300（03188): aim to replicate the CSI 300 Index
- HSCEI ETF（02828): seek to match as closely as practicable the performance of theHang Seng China Enterprises Index
Popular US ETFs
- VOO: tracks the S&P 500 index by owning all of the equities within the S&P 500
- ROBO: tracks a basket of robotics stocks from around the world
- QQQ (Invesco QQQ Trust): tracks the Nasdaq-100 Index including the 100 largest non-financial companies listed on the Nasdaq
Start investing in ETFs!
Best brokerage accounts in Hong Kong
Futu Securities Account
- Min. Commission Fee US Stocks
- US$0.99
- Commission Fee HK Stocks
- HK$0
- Futu Cash Plus average return over the past 12 months
- 3.6%
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Webull Securities Account
- Commission Fee US Stocks
- US$0
- Commission Fee HK Stocks
- HK$0
- US stocks minimum trade
- US$1
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- All-in Platform Fee
- 0.10-0.60%
- Minimum Investment Amount
- HK$500
- Minimum First Funding Amount
- HK$10,000
Advantages of ETFs
Transparent
Diversifying your portfolio
Cost-efficient
Disadvantages of ETFs
Tracking error
Currency risk
Vulnerable to market volatility
Compare your US stock accounts now to buy US stock ETFs!
Types of ETFs
Passive ETFs
Actively managed ETFs
Leveraged ETFs
Inverse ETFs
Who is ETF for?
As there will be brokerage commissions involved every time you trade, ETFs may be better suited for a buy-and-hold investor or someone who does not wish to actively manage their investment portfolio or who wish to access a particular investment but find it difficult to e.g. gold.
How to buy ETF?
Create a brokerage account
Fund the account
Search for ETFs
Confirm and purchase
ETF vs mutual funds
| ETF vs mutual funds | ETF | Mutual Funds |
|---|---|---|
| ETF vs mutual fundsCommissions | ETFLower (usually only charge brokerage exchange commissions and platform fee (if any)) | Mutual Funds Higher (usually charge agent commissions) |
| ETF vs mutual fundsTransparency | ETFHigher | Mutual Funds Lower |
| ETF vs mutual fundsInvestment cost | ETFLower | Mutual Funds Higher |
| ETF vs mutual fundsManagement style | ETFPassive | Mutual Funds Active |
| ETF vs mutual fundsFlexibility | ETFHigher | Mutual Funds Higher |
What are the fees and charges for ETFs?
Unlike mutual funds, ETFs do not normally charge a load. Since ETFs are traded directly on an exchange, brokerage commissions are usually incurred. It is important for investors to compare the brokerage fees, which can become an issue if an investor deposits small amounts of capital on a regular basis into an ETF leveraging on the "dollar cost averaging strategy".
Further reading
FAQ
What are ETFs made up of?
- ETFs can be structured to track anything from a particular index to a market or any commodity.
What is ETF bitcoin?
- A bitcoin ETF tracks the value of Bitcoin through a basket of assets.
What's the difference between an ETF and a mutual fund?
- ETFs are usually passively managed whereas mutual funds are usually actively managed.
What types of ETF can I buy?
- There are many types of ETFs available in the market such as stock index ETFs, commodity ETFs, inverse ETFs and leveraged ETFs.
Why is the market price sometimes different from the net asset value (NAV) of an ETF?
- The changes in the supply or demand for an ETF might affect the price of an ETF from the NAV of the ETF.