Invest in individual stocks or an ETF

Diversification can reduce investment risks. When it comes to stock investment, we may consider diversifying our investment across different markets, industries, strategies, and themes. While some investors choose to build their own stock portfolio, others may choose to invest in exchange-traded funds (ETFs).

Many investors may become familiar with ETFs through the Tracker Fund of Hong Kong, established in 1999 with the investment objective of tracking the Hang Seng Index (HSI). It is an equity ETF, with underlying assets being HSI constituent stocks, which are listed companies with high market value and liquidity, commonly known as “blue-chip stocks”. As the constituent stocks of HSI cover various industries, some investors consider investing in the Tracker Fund of Hong Kong as a way to diversify their investments across the Hong Kong stock market.

Equity ETF is the main category of ETFs. In addition to those tracking Hong Kong stocks, some equity ETFs listed in Hong Kong track A-shares, and stocks in the Asia-Pacific and other overseas markets, allowing investors to invest in overseas stock markets. Investors who wish to gain exposure in listed companies from different industries may consider equity ETFs that track different industries.

In recent years, there has been a rise in the variety of equity ETFs, covering emerging investment strategies, themes, and concepts. For instance, ESG, clean energy, cloud computing, robotics and artificial intelligence, semiconductors, electric vehicles, meta-universe and blockchain are some of the emerging topics in the financial markets. Investors can find such related equity ETFs listed in Hong Kong.

Conventional ETFs tracking equity indices typically invest in a basket of stocks, and the risks are more diversified. However, investors should not assume that ETFs are always low-risk investments. In fact, ETFs, like other investment products, also involve different risks. For example, ETFs tracking equity indices are exposed to market risks associated with the indices. When the underlying index drops, the ETF will also decline, resulting in losses for investors. Since volatility varies among indices, the risks associated with ETFs may also differ.

Over the years, ETF products have become more diverse, covering a wide spectrum of asset classes, markets, industries, and investment strategies. Before investing in an ETF, investors should always review the offering documents and key facts statements to understand the underlying index or assets. They should also study the operation and structure of such ETF to assess whether it aligns with their investment objectives and risk tolerance.