Complete Guide to Investing in HK and US ETF in 2024

28 May 2024

Investing in Exchange-Traded Funds (ETFs) has become an appealing option for many due to their diversification, cost-efficiency, and liquidity. For investors, ETFs offer a way to access a wide range of asset classes, including equities, bonds, and commodities, with the added benefits of lower fees and ease of trading. 

The first US ETF - SPDR S&P 500 (SPY) was introduced in 1993, and since then, the ETF market has grown substantially with the assets invested into the global ETFs industry reaching a record high of US$11.63 trillion at the end of 2023.

The rising interest in ETF investing among investors is driven by the desire for diversified, cost-effective investment options that offer both growth potential and liquidity. This guide will explore the benefits, strategies, and considerations for investing in both HK and US ETFs, providing insights to navigate the evolving landscape in 2024.

What are ETFs and How do ETFs Work?

Exchange-Traded Funds (ETFs) are investment funds that hold a collection of underlying assets, offering investors exposure to a diversified pool of investments without having to purchase each asset individually. ETFs can track various indexes like the FTSE 100, sectors, commodities, or other assets such as government bonds. These funds are considered "passive" investments, aiming to mirror the performance of a specific index or asset pool rather than outperform it.

ETFs operate through the creation and redemption of shares, which helps maintain their market price in line with the value of their underlying assets. They can be bought and sold on stock exchanges just like regular stocks, providing investors with flexibility and liquidity. This structure makes ETFs a popular choice for investors seeking cost-effective and diversified investment opportunities.

Types of ETFs Available Today

The majority of ETFs are index-based and aim to replicate a specific index or benchmark. These indexes can be based on stocks, such as the STI, or bond indexes. Regardless of the underlying asset, an index ETF aims to track the performance of its target index by holding all or a representative sample of the index components. This allows investors to achieve broad market exposure with the simplicity and efficiency of a single investment.

Type of ETFDescription
Index ETFsReplicate the performance of specific indexes, holding all or a sample of index components.
Equity ETFsTrack equity indexes, covering large-cap, small-cap, or sector-specific stocks, allowing targeted investment in high-performing sectors.
Bond/Fixed Income ETFsInvest in bonds and fixed-income securities, providing steady returns with potentially lower risk than equity ETFs.
Commodity ETFsOffer access to commodities like gold, silver, or oil, often using derivatives to track prices, introducing additional risks such as counterparty risk.
Currency ETFsInvest in single currencies or baskets of currencies, using direct investments or derivatives for hedging or speculative purposes.
Specialty ETFsInclude leveraged and inverse ETFs; leveraged ETFs aim for amplified returns, while inverse ETFs increase in value when the target index declines.
Factor ETFsFollow a factor investing approach, targeting specific return drivers through rules-based methodologies, often referred to as "Smart Beta."
Sustainable ETFsIncorporate environmental, social, and governance (ESG) criteria, aligning investments with sustainability principles.

Additional Types of ETFs

Besides the standard types of ETFs mentioned above, there are other specialised ETFs designed to meet different investment strategies and preferences:

Type of ETFDescription
Passive ETFsAim to replicate the performance of a broad index, such as the S&P 500, or target specific sectors or trends, offering a diversified investment.
Actively Managed ETFsDo not follow a specific index. Instead, portfolio managers actively select the securities, which can offer higher returns but often come with higher fees.
Inverse ETFsDesigned to profit from declines in the underlying index or asset by using derivatives to short stocks. These are typically structured as exchange-traded notes (ETNs).
Leveraged ETFsSeek to amplify the returns of an underlying index by using debt and derivatives. For example, a 2x leveraged ETF aims to double the performance (positive or negative) of the index.

Benefits of Investing in ETFs

ETFs (exchange-traded funds) are favored by many investors for several reasons:

  • Diversification: ETFs offer a straightforward way to diversify investments across various asset classes and sectors without having to pick individual stocks or bonds. They provide access to international, regional, and sector-specific markets, making it easier to invest in areas that might otherwise be challenging to enter.
  • Low Cost: ETFs generally have lower operating expense ratios compared to actively managed mutual funds, reducing the overall cost of investment. Many brokerage firms offer low or zero commissions for trading ETFs, enhancing their cost-efficiency.
  • Trading Flexibility: ETFs can be traded throughout the day like stocks, allowing investors to buy and sell at any time during market hours. This flexibility makes it easy to adjust portfolios quickly in response to market conditions.
  • Transparency: Most ETFs disclose their holdings daily, giving investors clear insight into the assets they own. This transparency helps investors understand what they are investing in and manage their portfolios more effectively.

The Hong Kong ETF market began with the launch of the Tracker Fund of Hong Kong (02800), the first ETF on the Hong Kong Exchange (HKEx) in 1999. It was introduced to liquidate government-held positions in Hong Kong stocks acquired during the Asian Financial Crisis in 1998. Since then, the market has expanded significantly. As of 2023, there are 267 ETFs issued on HKEX with a total assets under management (AUM) of up to US$50 billion, reflecting the growing investor interest and market maturity.

Now, let's delve into some of the most popular ETFs currently available in Hong Kong:

CategoryETF NameDescription
Index ETFsTracker Fund of Hong Kong (2800.HK)Aims to provide investment results that closely correspond to the performance of the Hang Seng Index, offering broad market exposure at a low expense.
iShares Core Hang Seng Index ETF (3115.HK)Seeks to track the performance of the Hang Seng Index, covering large and mid-cap segments in Hong Kong, providing diversified market exposure.
Equity ETFsChinaAMC CSI 300 Index ETF (3188.HK)Tracks the performance of the CSI 300 Index, which includes the 300 largest and most liquid A-shares in the Chinese market, offering top company exposure.
Hang Seng TECH Index ETF (3032.HK)Focuses on the Hang Seng TECH Index, providing exposure to the 30 largest technology companies listed in Hong Kong.
Bond/Fixed Income ETFsiShares RMB Bond Index ETF (3127.HK)Seeks to replicate the performance of an index composed of Renminbi-denominated bonds, giving investors access to the Chinese bond market.
ABF Pan Asia Bond Index Fund (2821.HK)Tracks the performance of the iBoxx ABF Pan-Asia Index, covering government bonds from eight Asian markets, including Hong Kong, providing regional exposure.
Commodity ETFsValue Gold ETF (3081.HK)Aims to reflect the performance of the price of gold bullion, allowing direct investment in physical gold.
SPDR Gold Trust (02840.HK)A sister fund to GLD of US equities and aims to track gold prices.
Currency ETFsCSOP USD Money Market ETF (3097.HK)Provides investment results that correspond to the performance of US dollar-denominated money market instruments, offering safe and liquid returns in USD.
CICC HKD Money Market ETF (3078.HK)Aims to provide investment results closely corresponding to HKD-denominated money market instruments, offering a safe, liquid option with stable returns in Hong Kong dollars.
Specialty ETFsPremia CSI Caixin China Bedrock Economy ETF (2804.HK)Tracks the performance of the CSI Caixin China Bedrock Economy Index, focusing on stable and growing sectors of China's economy.
Global X MSCI SuperDividend EAFE ETF (SDIV.HK)Invests in high-dividend-yielding equity securities, focusing on income generation and international exposure.
Factor ETFsGlobal X MSCI China Financials ETF (2805.HK)Provides exposure to large and mid-cap Chinese companies in the financial sector, leveraging factor-based investment strategies.
iShares Edge MSCI World Minimum Volatility ETF (3029.HK)Seeks to track the performance of the MSCI World Minimum Volatility Index, focusing on lower volatility investment opportunities.
Sustainable ETFsHSBC MSCI China ESG UCITS ETF (3033.HK)Tracks the MSCI China ESG Leaders Index, including companies with high ESG performance, aligning investments with sustainable practices.
iShares MSCI Emerging Markets ESG Leaders ETF (3073.HK)Aims to track the performance of the MSCI Emerging Markets ESG Leaders Index, providing broad exposure to emerging markets with an ESG focus.

The US ETF market has a rich history, beginning with the launch of the first ETF, the SPDR S&P 500 ETF (SPY), on January 29, 1993. This groundbreaking fund allowed investors to track the performance of the S&P 500 Index and marked the start of a revolution in passive investing. Since then, the US ETF market has grown exponentially, offering a wide array of investment options across various asset classes, sectors, and strategies. As of 2023, there are over 3,000 ETFs available in the US, with a total assets under management (AUM) surpassing US$8 trillion.

US ETFs offer investors opportunities to diversify their portfolios, gain exposure to different markets, and implement various investment strategies with ease and cost efficiency. This segment will explore some of the most popular ETFs in the US, highlighting their unique features and benefits for investors.

CategoryETF NameDescription
Index ETFsVanguard S&P 500 ETF (VOO)Seeks to track the performance of the S&P 500 Index, offering broad exposure to the largest 500 companies in the U.S.
SPDR S&P 500 ETF Trust (SPY)Aims to provide investment results that correspond to the performance of the S&P 500 Index, one of the most widely held ETFs in the world.
iShares Core S&P 500 ETF (IVV)Seeks to track the S&P 500 Index, offering broad and diversified exposure to the large-cap segment of the U.S. equity market.
Invesco QQQ Trust (QQQ)Tracks the Nasdaq-100 Index, providing exposure to 100 of the largest non-financial companies listed on the Nasdaq Stock Market.
Equity ETFsiShares Russell 2000 ETF (IWM)Seeks to track the investment results of an index composed of small-cap U.S. equities, offering exposure to smaller U.S. companies.
Vanguard Total Stock Market ETF (VTI)Provides exposure to the entire U.S. stock market, including small-, mid-, and large-cap growth and value stocks.
Schwab U.S. Large-Cap Growth ETF (SCHG)Tracks the performance of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, focusing on large-cap growth stocks.
ARK Innovation ETF (ARKK)Aims to capture long-term growth with a focus on companies involved in disruptive innovation, including genomics, automation, and technology.
Bond/Fixed Income ETFsiShares Core U.S. Aggregate Bond ETF (AGG)Tracks the Bloomberg Barclays U.S. Aggregate Bond Index, providing broad exposure to U.S. investment-grade bonds.
Vanguard Total Bond Market ETF (BND)Seeks to track the performance of the Bloomberg Barclays U.S. Aggregate Float Adjusted Index, covering a wide range of U.S. bonds.
Commodity ETFsSPDR Gold ETF (GLD)Tracks the performance of the price of gold bullion, providing investors with direct exposure to the gold market.
iShares Gold Trust (IAU)Seeks to reflect the performance of the price of gold, offering a cost-effective way to access the gold market.
Currency ETFsInvesco DB US Dollar Index Bullish Fund (UUP)Aims to track the performance of the Deutsche Bank Long USD Currency Portfolio Index, providing exposure to the U.S. dollar against a basket of major currencies.
WisdomTree Bloomberg US Dollar Bullish Fund (USDU)Offers broad exposure to the U.S. dollar against a basket of foreign currencies, focusing on dollar strength.
Specialty ETFsROBO Global Robotics and Automation Index ETF (ROBO)Tracks the ROBO Global Robotics and Automation Index, providing exposure to companies involved in robotics, automation, and AI industries.
Global X Robotics & Artificial Intelligence ETF (BOTZSeeks to invest in companies that stand to benefit from the increased adoption of robotics and AI technologies.
Factor ETFsiShares MSCI USA Quality Factor ETF (QUAL)Seeks to track an index composed of U.S. stocks with quality characteristics, focusing on companies with high return on equity, stable earnings, and low financial leverage.
Invesco S&P 500 Low Volatility ETF (SPLV)Aims to track the performance of the S&P 500 Low Volatility Index, focusing on the 100 least volatile stocks in the S&P 500.
Sustainable ETFsiShares ESG MSCI USA Leaders ETF (SUSL)Tracks an index composed of U.S. companies that have positive environmental, social, and governance characteristics.
Vanguard ESG U.S. Stock ETF (ESGV)Seeks to track the performance of the FTSE US All Cap Choice Index, focusing on U.S. companies meeting certain ESG criteria.

How to Choose the Right ETF

Choosing the right Exchange-Traded Fund (ETF) is a critical decision that can significantly impact your investment portfolio's performance and alignment with your financial goals. Here are some essential factors and strategies to consider when selecting an ETF:

  • Investment Goals: Your investment objectives are the cornerstone of your ETF selection process. Whether you're aiming for growth, income, or preservation of capital, your goals will dictate the type of ETFs that are suitable for you. For instance, if you're looking for growth, you might lean towards ETFs that invest in sectors with high growth potential like technology or healthcare. Conversely, if income is your priority, ETFs focusing on dividend-paying stocks or fixed income securities might be more appropriate.
  • Risk Tolerance: Understanding your risk tolerance is crucial in selecting an ETF that matches your comfort level with market volatility. If you have a high risk tolerance, you might be more inclined to invest in ETFs that hold stocks in volatile sectors or emerging markets. On the other hand, if you prefer a conservative approach, you might opt for ETFs that focus on bonds or stable, blue-chip companies.
  • Market Conditions: The current and anticipated market conditions should also influence your ETF selection. In a bullish market, you might favor ETFs that capitalise on rising stock prices. Conversely, in a bearish or volatile market, you might prefer ETFs that offer more stability or even inverse ETFs that profit from market declines.
  • Expense Ratio: The expense ratio, which is the annual fee charged by the ETF to cover its operational costs, directly impacts your investment returns. Lower expense ratios are generally preferable as they allow more of your investment to remain invested and compound over time. It's important to compare the expense ratios of similar ETFs, as even small differences can add up to significant amounts over the long term.
  • Fund’s Historical Performance: While past performance is not indicative of future results, reviewing an ETF's historical performance can provide insights into how it has managed under various market conditions. This can help you assess the ETF's potential for meeting your investment objectives. However, it's important to consider performance in conjunction with other factors, such as the expense ratio and the ETF's strategy.
  • Diversification Strategies: Diversification is a key strategy to manage risk in your investment portfolio. ETFs inherently offer diversification as they hold a basket of assets. However, you can further diversify by selecting ETFs that cover different asset classes, sectors, regions, or investment strategies. This can help mitigate the impact of poor performance in any single investment.
  • Aligning ETF Choices with Financial Goals: Finally, ensure that your chosen ETFs align with your personal or professional financial goals. This involves not only selecting ETFs based on your investment objectives and risk tolerance but also considering how they fit into your overall financial plan. This might include considering tax implications, liquidity needs, and how the ETFs complement other investments in your portfolio.

How to Buy ETFs in Hong Kong

To buy ETFs in Hong Kong, it is just like buying stocks where you can rely on popular online brokerages like Futu, Webull, Interactive Brokers, and Tiger Broker.

Another way to buy ETFs in Hong Kong is through StashAway Flexible Portfolio. StashAway offers a user-friendly platform with low fees and customizable investment options. To get started, sign up on StashAway's platform and choose the Flexible Portfolio option. Customise your portfolio by selecting specific asset classes and sectors based on your investment goals and risk tolerance. Our investment team has already chosen the best ETF to present each asset class or sector. Fund your StashAway account through available funding options. Monitor your investments through StashAway's interface, which provides insights and performance tracking to help you manage your portfolio effectively.

ETFs vs. Mutual Funds

How are ETFs and mutual funds alike?

Both ETFs and mutual funds represent managed "baskets" of individual securities, such as stocks or bonds, providing exposure to a wide variety of asset classes and niche markets. They offer more diversification than investing in a single stock or bond and can be used to create a diversified portfolio by combining funds from multiple asset classes.

How are ETFs and mutual funds different?

ETFsMutual Funds
ManagementTypically passively managed, tracking an index, though some are actively managed.vailable in both active and passive varieties, but most are actively managed by fund managers.
TradingTraded like stocks on an exchange with prices fluctuating throughout the day.Orders executed once per day at a set price for all investors.
Minimum InvestmentNo minimum investment required, bought in whole shares.Often have a minimum initial investment requirement and can be bought in fractional shares.
CostsMay include trading commissions, operating expense ratios, bid/ask spreads, and premiums/discounts.May carry operating expenses, sales loads, and early redemption fees but can be purchased without trading commissions.

ETFs provide flexibility and tax efficiency, while mutual funds offer accessibility through fractional shares and may have different cost structures. Each investment type has unique features catering to different investor needs and strategies.

As we look towards 2024 and beyond, the ETF market is set to expand with the introduction of new funds targeting emerging sectors. These sectors include clean energy, biotechnology, and digital assets, reflecting a growing investor interest in innovative and sustainable industries. These new ETFs are expected to provide investors with opportunities to capitalise on the growth potential of these dynamic sectors, which are becoming increasingly important in the global economy.

Global economic factors will also significantly influence ETF markets in the coming years. Inflation, interest rate changes, and geopolitical events are key factors that could impact market performance. For instance, rising inflation could lead to higher interest rates, affecting bond ETFs and other interest-sensitive investments. Meanwhile, geopolitical tensions could introduce volatility, presenting both risks and opportunities for ETF investors. Staying informed about these factors will be crucial for navigating the ETF landscape effectively.

Additionally, advancements in technology and financial markets are likely to drive further innovation in ETF offerings. The integration of artificial intelligence, blockchain, and other technologies could lead to the creation of more sophisticated and specialised ETFs. These advancements will not only provide more investment options but also enhance the efficiency and transparency of ETF trading. As the ETF market continues to evolve, investors should be prepared to adapt their strategies to take advantage of these emerging trends and opportunities.

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