Exchange traded fund (ETF) has been touted by some parties as an alternative to mutual fund. What exactly is ETF?
According to Investopedia,
“An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated once at the end of every day like a mutual fund does.
(Investopedia Definition Link)”
In summary, ETF is like a mutual fund without the sales charge and has lower fees. Nonetheless, as it trades in a stock exchange, there are associated fees to be paid too such as brokerage fee.
Touted benefits
1. Diversified exposure
ETF contains a basket of products, either shares, bonds or commodities, depending on the index that the ETF is based on.
2. Cost minimization
ETF charges lower management fees compared to mutual funds.
3. Immediate pricing
Transaction is based on current market price which is available immediately.
4. Transparency
Underlying assets are updated on a daily basis and can be seen on its website.
Exchange traded fund in Bursa Malaysia
10 ETFs are listed on the Main Market of Bursa Malaysia (Link).
| ETF | Benchmark index | Securities | Asset class | Fund manager |
|---|---|---|---|---|
| ABF Malaysia Bond Index Fund (0800EA) ABFMY1 | Markit iBoxx® ABF Malaysia Bond Index | Mainly Malaysian government bonds | Fixed Income | AmInvestment Services Berhad |
| FTSE Bursa Malaysia KLCI ETF (0820EA) FBMKLCI-EA | FTSE Bursa Malaysia KLCI Index | 30 largest listed companies on Bursa Malaysia by market capitalisation | Equity | AmInvestment Services Berhad |
| MyETF Dow Jones Islamic Market Malaysia (DJIM)Titans 25 (0821EA) MYETFDJ | Dow Jones Islamic Market Malaysia (DJIM) Titans 25 Index | 25 largest Shariah compliant listed companies on Bursa Malaysia by market capitalisation | Equity (Shariah- compliant) | i-VCAP Management Sdn. Bhd |
| CIMB FTSE/ASEAN 40 Malaysia ETF (0822EA) CIMBA40 | FTSE/ASEAN 40 Index | 40 largest companies by full market value listed on stock exchanges of Indonesia, Malaysia, Philippines, Singapore and Thailand that qualify for the inclusion in the FTSE/ASEAN Index | Equity | CIMB-Principal Asset Management Berhad |
| CIMB FTSE China 50 ETF (0823EA) CIMBA50 | FTSE China 50 Index | 50 largest and most liquid Chinese stocks listed and traded on the Hong Kong Stock Exchange | Equity | CIMB-Principal Asset Management Berhad |
| MyETF Dow Jones U.S. Titans 50 (0827EA) METFUS50 *trade in USD | Dow Jones Islamic Market U.S. Titans 50 Index | 50 largest companies by float-adjusted market capitalisation listed on the New York Stock Exchange (“ NYSE ”), National Association of Securities Dealers Automated Quotation System (“ Nasdaq ”), NYSE MKT LLC (“ NYSE MKT ”), NYSE Arca and BATS Exchange which have passed rules-based screens for Shariah compliance. | Equity | i-VCAP Management Sdn. Bhd |
| MyETF MSCI Malaysia Islamic Dividend (MyETF MMID) (0824EA) MYETFID | MSCI Malaysia IMI Islamic High Dividend Yield 10/40 index | 16 to 30 Shariah-compliant securities listed on Bursa Malaysia | Equity (Shariah- compliant) | i-VCAP Management Sdn. Bhd |
| MyETF MSCI South East Asia Islamic Dividend ETF (0825EA) METFSID | MSCI AC ASEAN IMI Islamic High Dividend Yield 10/40 Index | Up to 30 Shariah-compliant companies listed in the stock exchanges of Indonesia, Malaysia, the Philippines, Singapore, and Thailand | Equity (Shariah- compliant) | i-VCAP Management Sdn. Bhd |
| MyETF Thomson Reuters Asia Pacific ex-Japan Islamic Agribusiness ETF (0826EA) METFAPA | Thomson Reuters Islamic Asia Pacific ex-Japan Agribusiness Index | Stocks listed on the main exchanges of Australia, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, Thailand and New Zealand that are primarily engaged in the upstream agricultural production activities | Equity (Shariah- compliant) | i-VCAP Management Sdn. Bhd |
| TradePlus Shariah Gold Tracker (0828EA) GOLDETF | LBMA Gold Price AM | Gold | Commodity | Affin Hwang Asset Management |
Opinion
So is ETF worth investing in? In Malaysia, I think the choices are too limited. It is unlike in US where you can easily find a large number of ETFs. Furthermore, the dividend, if it is given, is not high (very low in fact). Only five of the ETFs are declaring dividend consistently. They are FBMKLCI-EA, MYETFDJ, CIMBA40, MYETFID and METFSID.
Another point to consider is the trading volume. For ETFs, the trading volume is generally low. It means that not a lot of people are trading ETF in Malaysia. This might be a disadvantage if liquidity is your priority.
Nonetheless, if you think the fees of mutual funds are too high for your liking, ETF might represent a better option for you.
Comments
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