Investor Education Leaflet on Index Tracking Exchange Traded Funds

The SFC today unveils a new investor education leaflet entitled "Index Tracking Exchange Traded Funds: Getting Started" to explain the benefits and risks of trading authorised index tracking exchange traded funds (ETFs) on The Stock Exchange of Hong Kong Limited (SEHK).

The SFC published the Guidelines for Regulating Index Tracking Exchange Traded Funds in October. An ETF is a fund authorised by the SFC that is traded on an exchange. Its principal objective is to track, replicate or correspond to an index on equities, debts or other securities. An ETF is a hybrid of a fund and a stock.

In plain language, the leaflet explains that an ETF is transparent, easy to trade, and provides investors with opportunities to replicate the gains and losses of the basket of securities which it is designed to track without the expense of buying all the underlying securities themselves. However, investors should be aware that ETFs may be exposed to market and liquidity risks as well as possible tracking errors.

Besides, whilst an ETF has a net asset value (NAV) that is calculated with reference to the market value of the securities it holds, the trading price of an ETF on the SEHK is determined by the supply and demand in the market. Therefore, the trading price of an ETF may not be equal to its NAV.

Investors are also reminded that the offering document, financial statements, notices and other trading and related information of an ETF are publicly available via the website of the Hong Kong Exchanges and Clearing Limited, through securities dealers and usually on the ETF’s own website.

As with all other SFC investor publications, the leaflet is available to the public for free at the SFC office and the Consumer Advice Centres of the Consumer Council. The public may also view and download the electronic version of the leaflet on the "Advice to Investors – Investor Education Programmes" section of the SFC website. Licensed intermediaries are also welcome to request copies for distribution by calling the SFC’s Investor Education and Communications Department at 2842 7711.

The SFC’s Investor Hotline at 2840 9333 remains open to provide educational information on ETFs.

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