The different types of ETFs

What are they and what do you need to know about them

What are they and what do you need to know about them

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There are many types of ETF, it can be an ETF based on equity such as stocks or it could be a bonds ETF, etc. To keep things simple, we will focus mainly on equity ETFs. Equity ETFs can be usually categorized based its investment objectives.

What is the investment objectives?

An investment objective refers to how the fund company selects the company to put it in the basket. Here are some of the examples:

  1. **Index-fund ETFs
    **Index-fund ETFs basically does what the name suggests, it tracks the companies that are listed on the index fund. These index-fund usually track the top companies in the market. The Straits Time Index(STI) ETF is an index-fund ETF that track Singapore’s top 30 companies. Others include Vanguard S&P 500 ETF ( representing 500 of the largest U.S. companies.), iShares Core Hang Seng Index ETF ( top 95th percentile of the total Hong Kong-listed company), etc.
    When investing in such an index, your investment conviction is usually towards a particular country. i.e. investing in Vanguard S&P 500 ETF because you believe in the U.S economy in the future.

  2. **Sector-specific Index-fund ETFs
    **The index fund tracks the top biggest companies regardless of the sector if you wish to invest in a particular sector, you may opt-in for ETF that focuses on a specific sector. Usually, these ETFs are slightly more expensive compared to index fund ETFs. Examples of such ETFs are
    iSPDR® S&P Health Care Equipment ETF, iShares Hang Seng Tech ETF, etc.
    When you invest in sector-specific index fund ETFs, you are confident that the particular sector in the economy you are investing in will do well. For example, investing in iShare Hang Seng Tech ETF would mean that you believe in the Hong Kong Listed technology company, which mainly consists of China, will do well in years to come.

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  3. **Thematic ETFs
    **Thematic ETFs form the basket of companies based on a theme, sector, goal, etc. The main difference with the sector-specific Index fund ETF is that thematic ETFs does not track the fund on the index. The professionals behind this fund will select the companies that fit well into the theme into the basket. Such thematic ETFs usually cost more than the ETFs mentioned above. Examples of such ETFs include ARK Innovation ETF which invests in what the fund manager calls disruptive innovation, new products or services that could dramatically shift how the world works.
    Investing in thematic ETFs is riskier than the ETFs mentioned above because, for the thematic ETFs, the fund manager has to decide which company to include in the basket and its weightage. This is unlike the index fund ETF where the fund manager can simply follow what’s on the index. Therefore to invest in a thematic ETF, it is important to invest in a company with a good track record as well as picking the right theme.

  4. **Dividend ETFs
    **Dividend ETFs refers to ETFs that is designed is to invest in a basket of dividend-paying stocks. Dividends basically refer to the profit the company share with their shareholder (investors who own shares in the company).
    Such ETFs will usually aim to give investors a steady stream of dividends as cash or may reinvest it for faster growth. Dividend ETFs although have the same investment objectives, the methodology behind how the holdings allocation may differ. Examples of dividend ETFs include Syfe REITs+ (real estate focus dividend ETF), Vanguard Dividend Appreciation ETF ( Includes company with at least 10 years of increasing dividend records), etc.
    Dividend ETFs is a good way to get started with building your passive income. Generally, the dividend-paying companies have already reached a stage where the earnings have stabilised. This often means less volatility as compared to companies in their growth stage.


The different types of ETFs mentioned here may not fully cover the whole spectrum of ETFs. Although, we hope that sharing all these does give you the background knowledge you need to get yourself started.