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ETFs are traded on a stock exchange and aim to match the performance of a specified index, sector, or asset class.
For example, you can invest in ETFs that track the performance of the S&P 500 index or the ADX General. Or thematic investments, focusing on emerging markets or small caps. You can also choose to invest in specific sectors, such as healthcare, AI or real estate.
ETFs are seen as an affordable and convenient way to access a diverse range of assets through a single investment.
What you’ll learn:
ETFs are made up of all the holdings of a particular index.
If you invest in an S&P 500 ETF, for example, you’re buying a small stake in all the companies listed on the index. You can see the company list and proportions in the ETF descriptions.
The value of your investment will go up or down to mirror the index's performance.
ETFs are listed on stock markets, so you can buy and sell them as you would individual stocks, or equities. This means they're liquid assets and can be traded at any time during market hours.
Explore: Exchange-Traded Funds
ETFs may pay dividends depending on the underlying assets. If you invest in an equity ETF you may get dividends if the companies within the fund pay them.
Dividend payments can vary, depending on the strategy and performance of the fund and the stocks within it.
If ETFs pay dividends, they'll usually do so at specified intervals. Bear in mind that dividends can be taxed as income.
When researching funds, you may wonder whether to invest in an ETF or a mutual fund.
Mutual funds are similar to ETFs in that they give you access to a diversified basket of stocks or other assets through one investment.
| ETFs | Mutual funds |
|---|---|
| Listed on the stock exchange and trade like stocks. The price of an ETF is live and can change throughout the day. | Only traded at the end of the day once the market closes, at a single price. |
| Minimum investment often lower. | Minimum investment may be higher. |
| Fees often lower as ETFs are generally passively managed. | Fees can be higher, especially if fund is actively managed. |
| ETFs | Listed on the stock exchange and trade like stocks. The price of an ETF is live and can change throughout the day. | Listed on the stock exchange and trade like stocks. The price of an ETF is live and can change throughout the day. |
|---|---|---|
| Mutual funds | Only traded at the end of the day once the market closes, at a single price. | Only traded at the end of the day once the market closes, at a single price. |
| ETFs | Minimum investment often lower. | Minimum investment often lower. |
| Mutual funds | Minimum investment may be higher. | Minimum investment may be higher. |
| ETFs | Fees often lower as ETFs are generally passively managed. | Fees often lower as ETFs are generally passively managed. |
| Mutual funds | Fees can be higher, especially if fund is actively managed. | Fees can be higher, especially if fund is actively managed. |
Learn more: What are mutual funds?
An ETF offers diversification through a single trade, which can potentially lower your risk and exposure to any one security or even asset class.
Individual stocks, or equities, can be riskier to invest in because your investment hinges on the performance of a single company. But stocks can have the potential for higher returns than ETFs if the company performs well.
Stocks require more research and ongoing monitoring, which can be time-consuming.
A bond is a debt security issued by a government or company to raise money. When you buy a bond, you lend money to the bond issuer. In return, you get regular interest payments and your initial investment back when the bond matures.
Bonds are considered a lower risk investment than equities. They generally provide regular interest payments and can be a reliable source of income but may offer lower returns.
There's some risk, such as fluctuating interest rates and the creditworthiness of the bond issuer, but bonds are seen as less volatile than equities.
You can invest in bond ETFs, which give you access to a portfolio of bonds, spreading your risk across them.
Bond ETFs are more liquid than individual bonds, meaning it’s easier to sell them.
ETFs can offer you:
Remember, with all investments there's an element or risk. ETFs are subject to market fluctuations and can go down in value as well as up.
Explore: Wealth management
You can invest in an ETF through a brokerage or investment account with your bank.
ETFs have different minimum investment requirements but most start at one share.
Exchange-Traded Funds are seen as a popular, flexible and affordable way to invest.
Whether you’re a beginner or seasoned investor, ETFs offer access to a wide range of markets to build a diversified portfolio and help you meet your goals.
Access more asset classes, in up to 25 markets and 77 exchanges, with competitive transaction fees.
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This article is for information purposes only and does not constitute investment advice or a recommendation to purchase any specific investment product. Any views or opinions expressed are subject to change without notice. Before making an investment decision, you should seek advice from your HSBC relationship manager or another professional adviser taking into account your individual financial circumstances and objectives. HBME is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article.
