Exchange-Traded-Fund (ETF) 101: Part II

January 22, 2020

How to Buy and Sell

Through online brokers and/or traditional broker or agents [license broker educated to help investor to choose the proper investment strategy designed for them] the clients can invest to ETF. An alternative to traditional brokers are online-advisors from Investam HK who make use of ETFs in their investment products. You can browse Investam HK site to know more about your professional broker and get the help you want for your investing journey.

Real World Examples of ETFs

Below are some of the renowned examples of ETFs on the market as of today. Most of the ETFs track an index of stocks creating a broad portfolio, while others target certain industries.

  • SPDR S&P 500 (SPY): The oldest surviving and most widely known ETF tracks the S&P 500 Index
  • iShares Russell 2000 (IWM): Tracks the Russell 2000 small-cap index
  • Invesco QQQ (QQQ): Indexes the Nasdaq 100, which typically contains technology stocks
  • SPDR Dow Jones Industrial Average (DIA): Represents the 30 stocks of the Dow Jones Industrial Average
  • Sector ETFs: Track individual industries such as oil (OIH), energy (XLE), financial services (XLF), REITs (IYR), Biotech (BBH)
  • Commodity ETFs: Represent commodity markets including crude oil (USO) and natural gas (UNG)
  • Physically-Backed ETFs: The SPDR Gold Shares (GLD) and iShares Silver Trust (SLV) hold physical gold and silver bullion in the fund.

Advantages and Disadvantages

Lowering average cost is one of ETFs advantages’ since it would be expensive for any investor to buy all stocks individually. With ETF, investors only need to carry out one transaction in buying and selling in exchanges which leads to a fewer broker commissions. A typical broker charge a commission in every trade but there are some who offer no-commission trading on certain low-cost ETFs that reduce costs for investors.

An ETF’s expense ratio is the cost to operate and manage the fund. ETFs typically have low expenses since they track an index. For example, if an ETF tracks the S&P 500 index, it might contain all 500 stocks from the S&P making it a passively-managed fund and less time-intensive. However, not all ETFs track an index in a passive manner.


  • Access to most stocks across different industries
  • Low expense rate and fewer broker commissions.
  • Risk management made possible through diversification
  • ETF type that focus on single –target industry


  • Possible higher fees from Actively-managed ETFs
  • limited diversification in  Single industry focus ETFs
  • Lack of liquidity hinders transactions

Actively-Managed ETFs

Portfolio managers, agents or brokers who are more involved in buying and selling of shares, stocks or holdings from one fund to another tends to have higher expense rate. This type of Exchange-Trade-Fund (ETF) handling is called ‘Actively-Managed ETFs.’ So it is very important for any investor to get involve on how the fund is manage for the resulting expense rate or cost will weigh if an investment is worth risking.

Indexed-Stock ETFs

An indexed-stock ETF provides investors with the diversification of an index fund as well as the ability to sell short, buy on margin, and purchase as little as one share since there are no minimum deposit requirements. However, not all ETFs are equally diversified. Some may contain a heavy concentration in one industry, or a small group of stocks, or assets that are highly correlated to each other.

Dividends and ETFs

Aside from generating gains as stocks rise and fall, investors of ETFs also benefits from companies that pay dividends. A portion of earnings paid or allocated by the companies to investors for holding their stocks is called ‘Dividends.’ ETF shareholders are entitled to a proportion of the profits, such as earned interest or dividends paid, and may get a residual value in case the fund is liquidated.

ETFs and Taxes

Since buying and selling of funds occurs through exchange, ETF is more tax efficient compare to Mutual Fund. An ETF sponsor do not need to redeem shares each time an investor sells or issue new set of shares whenever an investor buys. Redeeming shares can cause a tax liability but by way of listing shares to exchanges taxes cost can be lowered.  

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