Exchange Traded Funds

What are exchange traded funds (ETFs)?

ETFs are collection of securities that typically track a specific market index such as the Hang Seng Index. They are similar to a mutual fund, or unit trust, but trades like a stock throughout the day.

How does the performance of an ETF compare with the performance of its underlying index?

Exchange traded funds are designed to provide investment results that generally correspond to their underlying benchmark index by holding a portfolio of securities based on the underlying index.

What are the costs for investing in an ETF?

The costs generally include:

  • Bid/Ask spread of the ETF;
  • Trading/brokerage commission, stamp duty and other levies;
  • Fees and expenses of the ETFs such as management fee, trustee fees and custodian fee, etc.
What are the risks of investing in ETFs?

Before investing in an ETF, investors should consider and satisfy themselves as to the risks associated with such an investment. Equity-based ETFs are subject to risks similar to those of stocks. Investment returns will fluctuate and the value of the units in the fund (and any income from them) is not guaranteed and may go down as well as up. Past performance is also no guarantee of future results. More details of the potential risks are set out in the individual's ETF prospectus.

ETFs vs. Shares vs. Unit Trusts

ETFs and index mutual funds are similar in that each holds a collection of securities intended to represent a specific investment theme or objective (e.g., growth or value stocks, homebuilding industry, small cap stocks, etc.). They are not the same, however.

ETFs vs Shares Vs Unit Trusts
What is the Role of ETFs in Your Portfolio?

ETFs may play a pivotal role in helping you achieve your investment goals

  • Provide More Diversification: Potentially add low cost diversification to almost any market segment: domestic, international, equities, fixed income, etc.
  • Broaden Asset Allocation: Fill gaps in portfolio exposure: fixed income, international equities, domestic equities, REITs, commodities, precious metal, etc.
  • Adjust Portfolio to New Objectives: The precise nature of ETFs enables easy alignment with investor objectives.
  • Tactically Reposition Portfolio: Liquidity, trading flexibility and low cost make ETFs effective for short-term portfolio repositioning.
Why invest in an index?

Indexing, often called "passive management" involves investing in a group of securities that represent the composition of a broad stock market, stock industry sector, international stock, or U.S. bond index. Index funds offer "market level" performance; they aim to generally track the performance of a specific index. Index funds generally have lower management fees and operating expenses than actively managed funds.

What are the differences between Physical and Synthetic ETFs?

Physical ETFs replicate the return of the indices through the purchase of physical securities, whereas synthetic ETFs replicate the return through the implementation of total return swaps or other derivatives.

Can I redeem my ETF shares for the underlying securities?

Requests for redemption of units must be made through participating dealers or by approved applicants. Each SPDR ETF has its own creation and redemption requirement and participating dealers. For example, the current redemption unit size for SPDR FTSE Greater China ETF is 100,000 units or whole-number multiples of 100,000 units. For more information regarding redemption of ETF units, please refer to the prospectus of the fund or contact the SPDR Capital Market Group.

State Street ETFs

What are SPDR ETFs?

Offered by State Street Global Advisors, SPDR ETFs are a family of exchange traded funds that provide investors with the flexibility to select investments that are precisely aligned to their investment strategy. Recognized as the industry pioneer, State Street Global Advisors launched the first US ETF on January 22, 1993; the first ETF in Hong Kong on November 11, 1999; the first ETF in Australia on August 24, 2001; and launched the first ETF in Singapore on April 11, 2002.

How do I buy or sell SPDR ETFs?

Units in SPDR ETFs can be bought and sold at any time during the trading day on the Stock Exchange of Hong Kong (SEHK) though stock brokers, same as trading any other listed securities. Brokerage transaction costs, stamp duties and levies associated with dealing on the SEHK will apply.

Are SPDR ETFs cost efficient?

SPDR ETFs are designed to be cost-efficient. As an indexed investment, they can have the advantage of being less expensive to operate and therefore typically have lower expense ratios. Expense ratios have become increasingly important to both retail and institutional investors because they can have a significant impact on the portfolio's return and the investor's potential for wealth accumulation.

What is iNAV?

Indicative Net Asset Value or Estimated NAV per Unit means the estimated value of an Index Basket. Such figures are only indicative of that day's Issue Price and Redemption Value and should not be viewed as the actual NAV per Unit. The estimated NAV per Unit is provided for reference purposes only and may differ from the actual NAV per Unit calculated in accordance with the Trust Deed.

Do any SPDR ETFs use synthetic replication?

Currently, all State Street Global Advisors' SPDR ETFs in Hong Kong are supported by the physical replication model.

Do any SPDR ETFs engage in securities lending?

Currently, all State Street Global Advisor' (SSGA) SPDR ETFs in Hong Kong do not engage in securities lending.

Are any State Street /SPDR ETFs approved by Mandatory Provident Fund Schemes Authority (MPFA) as Index-Tracking Collective Investment Schemes (ITCIS)?

Yes, for example the SPDR FTSE Greater China ETF (3073)  and the Tracker Fund of Hong Kong (2800) are both approved ITCIS by the MPFA. For a complete list of SPDR ETFs that are approved by MPFA or understand more about ITCIS, please click here to visit the MPFA website.

Distribution Information
  • Do I get paid dividends on ETFs?
    ETF unit holders may receive their pro rata share of dividends, if any, accumulated on the stocks held in an ETF, or interest on the bonds held in an ETF, less fees and expenses. Dividend distributions are not guaranteed, and therefore, investors may not receive any dividends.
  • What are the distribution arrangements?
    In general terms, unit holders on the register of a fund on the record of date of a distribution will be entitled to the distributable income (if any) for that period, based on the number of units held in the fund. Distributable income includes dividends and distributions received from the fund's investments. Each SPDR ETF fund has its own detailed rules on how distributable income and income entitlements are calculated. Distribution periods may be varied. Dividend distribution is at the manager's discretion and past distributions are not necessarily indicative of future distributions. The SPDR FTSE Greater China ETF (3073) distribute semi-annually at the Manager’s discretion. The SPDR Gold Shares (2840) do not distribute any dividend. Tracker Fund of Hong Kong (2800) normally distributes dividend semi-annually (Normally May and November each year).

Important Risk Information

Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities. Currency exchange rates between the U.S. dollar and non-U.S. currencies may fluctuate significantly over short periods of time and may cause the value of investments to decline. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs. Diversification does not ensure a profit or guarantee against loss. Investing in commodities entails significant risk and is not appropriate for all investors. There can be no assurance that a liquid market will be maintained for ETF shares.