Two funds are in constant competition, but which is better?

Exchange traded funds (ETFs) are relatively new to Hong Kong. The first such fund to hit Hong Kong - the mother ship ETF, as it were - was the splendidly large and liquid Tracker Fund, which was forged out of the Hong Kong government's massive intervention into the Hong Kong share market during the Asian financial crisis, arriving in 1999.

It was a unique listing that came on top of a unique situation. After Tracker, Hong Kong's ETF market went fallow for years. Interest was revived following the 2008-09 credit crisis, when investors realised the importance of transparent, well-governed instruments that are easy to exit - all virtues of the ETF. A flood of new listings unfolded, and that is where we are today.

By comparison, mutual finds have been in Hong Kong for a long time.

So how do the two compare?

While both ETFs and mutual funds are stringently regulated in Hong Kong and seem similar because they represent an underlying portfolio of securities, there are critical differences. The instruments differ in terms of the kinds of investment strategies they are suited for, the way they trade, their buying and selling process, fee structures and their transparency.

In their ideal form, ETFs combine the best aspects of funds - asset diversification - with the features of single stocks - real-time pricing and liquidity.