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In terms of replication methodology, there are two types of ETFs: Physical ETFs and Synthetic ETFs. A Physical ETF invests in securities that replicate or represent the composition of the index it tracks, and a Synthetic ETF uses financial derivative instruments (such as swaps and performance-linked structured products issued by counterparties) to track index performance. Since Synthetic ETFs invest in over-the-counter derivatives issued by counterparties, these ETFs are exposed to the credit risk of the derivative counterparties.
Our current Hong Kong listed sub-funds of Horizons Exchange Traded Funds Series are physical ETFs.
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