Topic 5-Alternative Investments ((iii) Types of ETFs)

Question 1

Types of ETFs

Answer 1

1. Broad domestic market index
2. Style (such as value and growth)
3. Sector or industry (can be found in the United States, Europe and Japan)
4. Country or region (multiple countries, e.g. MSCI Europe).
5. Fixed Income
6. Commodity (e.g. on GSCI)

Question 2

Types of ETFs (Broad Domestic Market Index)

Answer 2

• In many countries the most active ETFs are those launched on the major local stock index.
• Hong Kong tracker fund was the first listed in Asia and the largest ever IPO in Asia excluding Japan

Question 3

Types of ETFs (Style)

Answer 3

• Some ETFs track a specific investment style (value vs growth)
• The ETFs are based on value and growth indexes
• This type of ETF is mainly found in the US

Question 4

Types of ETFs (Sector)

Answer 4

• Some ETFs track a sector index or invest in baskets of stocks from specific industries including consumer, cyclicals, energy, financial, health care, industrials, staples, technology, teleccomunications, media and utilities.
• Some ETFs specialize in a narrow sector such as real estate investment trusts (REIT).

Question 5

Types of ETFs (Country)

Answer 5

A fast-growing segments of the ETF market is funds tracking foreign-country indexes and regional indexes.

Question 6

Types of ETFs (Fixed Income)

Answer 6

• This category is a recent addition to the universe of ETFs and mostly in the US.
• THey have had less success than equities so far

Question 7

Types of ETFs (Commodity)

Answer 7

• ETFs have been introduced on some commodities such as precious metals and on some broad-based commodity index such as GSCI

Question 8

Risks faced by ETFs

Answer 8

• Risks related to the underlying securities (Market, Currency, Country, Asset class/sector risks)

-Unique to ETF
• Trading Risk
• Tracking error risk
• Derivatives risk