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Young woman using smartphone by the promenade ; image used for HSBC Singapore All you need to know about ETFs article.

All you need to know about ETFs

Ready to get more hands on with your investing? If you want to take more control over what you're putting your money into, but don't want the volatility of trading single stocks, ETFs might be the way to go.

What are ETFs?

An ETF, or  "Exchange Traded Fund", is a package of securities from different companies. It offers a way of getting diversification in your portfolio, which can give more stability than investing in individual companies.

You might be wondering, how do ETFs differ from unit trusts? There are a few major differences, but the biggest one is that you can buy and sell ETFs on the stock market. This means real-time prices that are updated throughout the day when markets are open.

What kinds of ETFs are there?

ETFs allow you to invest your money in an area you are interested in. Here are some of the more commonly available types:

Regional ETFs

Feel like a region's economy is about to boom? Or maybe you're hoping you can help a country/region develop by investing there? Then check out Regional ETFs. These funds are packages of companies from different countries and regions around the globe. They can be specific: China or France; they can be broad: Southeast Asia or North America; or they can be based on a theme: developing economies.

Sector ETFs

These allow you to invest in the entire industry of your choice, whether it's automotive, healthcare or technology. Keep in mind that these are very broad categories. If you want to get more specific (say, investing in electric cars instead of cars, trucks, buses, etc) then take a look at Thematic ETFs.

Index tracking ETFs

These are ETFs that allow you to invest in the top performing companies on a given stock market, such as the Straits Times Index, the Hang Seng Index, the Dow Jones Index or the S&P 500 Index. If the market goes up, so does your investment. Conversely, if the market goes down, your investment will suffer.

Commodities ETFs

Want to invest in gold but don't want to actually buy physical gold bullion? Here's another option you can explore. Commodities ETFs allow you to focus your investment to things like gold, oil, timber or sugar. A lot of the investments normally done in commodities involve complex financial instruments such as futures and derivatives. But Commodities ETFs simplify this investment, allowing for easy entry into the market.

Bond ETFs

Normally if you want to invest in a bond, you need to hold the bond until it matures, otherwise you could lose money. It's also tricky sometimes to see how that bond has performed over the years. Both of these issues are solved with Bond ETFs. Not only can you chart the fund's performance on a day to day basis, you can buy or sell at any time.

Real Estate Investment Trust (REIT) ETFs

Aside from a few volcanoes in Hawaii, nobody's making more land. If you want to invest in real estate but can't afford to get on the property ladder, an REIT ETF might be your ticket in. It's like buying tiny pieces of property in many different locations, and being able to trade it on the exchange.

Thematic ETFs

Here's where things get really interesting. Thematics allow you to invest very specifically in what you want. For example, you can invest in the technology industry with a Sector ETF, but you can find Thematic ETFs about robotics, AI or cloud computing. Thematics is also where you'll find ESG, or sustainable ETFs. These allow you to focus your investment on companies that are eco-friendly and supportive of human rights for their workers, suppliers and customers.

How are ETFs different than other investment strategies?

Besides offering diversification and tradability, ETFs have several other attractive features. Let's take a look at how they compare to two other common investments: individual stocks and active equity funds.

Individual stocks
ETFs
Active Equity funds
  • Managed by investors themselves
  • Investors usually hold a smaller number of stocks
  • Higher minimum investment needed to build a diversified portfolio
  • Can be traded anytime during a trading day, investors always know the pricing of the trade
  • Might be hard to access overseas markets
  • Investment decision based on profile of individual companies
  • Margin buying / short selling is possible
  • Index tracking, passive investing style
  • Investment is in a basket of stocks
  • Lower minimum investment amount, monthly investment plan available
  • Can be traded anytime during a trading day, investors always know the pricing of the trade
  • Gives access to different regions / markets to capture opportunities across the globe
  • Choices of different geographic markets or investment styles
  • Margin buying / short selling is possible
  • Managed by professionals
  • Investment is in a basket of stocks
  • Lower minimum investment, monthly investment plan available
  • Often traded daily but on a forward pricing basis; when investors place an order to buy a fund, they do not know what the fund's price will be for that particular day
  • Gives access to different regions/markets to capture opportunities across the globe
  • Choices of different investment styles or strategies
  • No margin buying / short selling

Besides offering diversification and tradability, ETFs have several other attractive features. Let's take a look at how they compare to two other common investments: individual stocks and active equity funds.

Individual stocks
  • Managed by investors themselves
  • Investors usually hold a smaller number of stocks
  • Higher minimum investment needed to build a diversified portfolio
  • Can be traded anytime during a trading day, investors always know the pricing of the trade
  • Might be hard to access overseas markets
  • Investment decision based on profile of individual companies
  • Margin buying / short selling is possible
ETFs
  • Index tracking, passive investing style
  • Investment is in a basket of stocks
  • Lower minimum investment amount, monthly investment plan available
  • Can be traded anytime during a trading day, investors always know the pricing of the trade
  • Gives access to different regions / markets to capture opportunities across the globe
  • Choices of different geographic markets or investment styles
  • Margin buying / short selling is possible
Active Equity funds
  • Managed by professionals
  • Investment is in a basket of stocks
  • Lower minimum investment, monthly investment plan available
  • Often traded daily but on a forward pricing basis; when investors place an order to buy a fund, they do not know what the fund's price will be for that particular day
  • Gives access to different regions/markets to capture opportunities across the globe
  • Choices of different investment styles or strategies
  • No margin buying / short selling

Ready to start exploring ETFs?

If you've registered for online banking and have an Equity Investment Account, you'll have access to HSBC Online Securities Trading. This feature lets you explore the ETFs we offer and trade them just like any stock.

It also includes our 'Quick Quote' function, which lets you find the ETFs you have in mind, so you can analyze and compare their performances and even add them to your watch list.

To get full access to trades, you'll need to have completed your CAR, Risk Warning Statement (RWS) and W8-BEN forms. If your CAR form has expired, you can update it via the online Document Center.

Already set up and ready to start investing?

Log on to online banking and go to the Wealth Dashboard to begin.

Don't have an HSBC account yet?

If you don't yet have an investment account with us, leave us your details and we'll get you set up.