When one mentions Exchange Traded Funds (ETFs), the first few that pops up in a retail investors’ minds would be the STI ETF and bonds ETF.
ETFs make great investments. You can earn an average return from the basket of securities with less risk. There’s no need for you to specifically analyze, pick and monitor the performance of an individual company.
Aside from the usual ETFs, here are 5 less common ETFs that not every retail investor would know about.
#1 Synthetic ETFs
Synthetic ETFs differ from your normal ETFs. In physical ETFs, the fund manager would use cash to buy actual units of the ETF, which invests in securities that replicate the index it is tracking. However, for synthetic ETFs, derivatives such as futures or options are used to replicate the behavior or an ETF; actual stocks or bonds are not bought.
How do you tell if an ETF is a synthetic one? Usually, an X is placed in front of the ETF’s name. For example, we look at the column SIP on SGX, there are ETFs with “[email protected]”. These ETFs with [email protected] are synthetic replicated ETFs and SIP.
#2 Gold ETFs
Gold ETFs aim to track the price of gold. This provides a form investment that is more liquid for investors as compared to purchasing physical gold as an asset. Gold ETFs are also easier to track and access compared to accumulating the physical metal.
Examples of a gold ETFs include the SPDR Gold Shares ETF and iShares Gold Trust ETF.
#3 Emerging Markets ETFs
Perhaps it’s time to look abroad for better investment returns. Emerging markets such as Indonesia and China refer to countries progressing towards becoming advanced.
Issuers such as BlackRock handle ETFs in emerging markets such as Philippines and Thailand. Examples of a few funds include iShares MSCI Emerging Markets ETF, iShares MSCI Philippines and SPDR S&P Emerging Asia Pacific ETF.
#4 Currency ETFs
Currency ETFs track the performance of currencies in the exchange. The performance of currencies depends on a number of factors such as the economy’s performance, trade, political issues, interest rates, government debt etc.
There are various types of currency ETFs. Currency ETFs can include domestic currencies, foreign currencies or both. Some ETFs only track individual currencies (e.g. Guggenheim Currency Swiss Franc ETF and Guggenheim CurrencyShares Euro ETF).
There are also ETFs that track a basket of different currencies (e.g. PowerShares DB G10 Currency Harvest ETF). A currency ETF that tracks multiple currencies help with diversification and allow us to hedge against changes in currency prices.
#5 Medical ETFs
With global healthcare spending increasing over the years, it is no surprise that there are ETFs that track the medical sector as well.
Examples of medical ETFs include SPDR S&P International Health Care Sector ETF, iShares Global Healthcare ETF and MSCI Health Care Index ETF.
Healthcare ETFs can further broken down into mainly pharmaceuticals (e.g. SPDR S&P Pharmaceuticals ETF) and biotechnology (e.g. Nasdaq Biotechnology Index ETF and SPDR S&P Biotech ETF).