There are two types of ETFs - physical and synthetic ETFs. Physical ETFs are invested in the underlying shares. Synthetic ETFs are invested in derivatives to mimic the index returns.
...Investors should avoid the synthetic ETFs. Some issuers take the cash and replace them with illquid, hard to value products as collaterals. If the investors rush to liquidate their positions, the issuers might not be able to raise enough cash to pay off the investors. The synthetic ETFs also face the counter party risk where the other party to the derivatives may not be able to honour their obligation.
The Straits Times Index ETFs marketed by SPDR and DBS are physical ETFs - which do not have the risk of the synthetic ETFs.
