SGX announced further measure to differentiate between direct replication ETFs and synthetic replication ETFs

On 22 August 2011, SGX announced “Further measure to improve investor awareness of exchange traded fund (ETF) structures“.

Recent attention given to the embedded risks of synthetic replication exchange traded funds (ETFs) has raised awareness on the importance of understanding the structures, features and risks of a product for informed investment decisions.

To make it easier for investors to differentiate between direct replication ETFs and synthetic replication ETFs, representing the two broad structures of ETFs, the Exchange has arranged for the trading name of all synthetic replication ETFs to be tagged with an ‘X’, which appears next to the ‘@’ used to mark Specified Investment Products (SIPs). This improves visibility of all the synthetic replication ETFs on trading screens and the SGX live prices website.

I am glad this has finally been done as I always feel ETF is oversold in the past two years. Investors have a lot of misconceptions about what ETF is about.

ETF is merely an investment instrument, but it was marketed as a strategy by the ETF sellers. Investors are not aware that, many times, ETFs fail to deliver what they are marketed for. If investors are informed about what happened to synthetic ETFs during Japan Earthquake in March and Silver price slump in May, they should have better idea of the risks in their portfolio.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
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