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Table of contents
- What is an ETF?
- HOW DOES AN ETF WORK?
- HOW IS AN ETF PRICE DETERMINED?
- Types of ETFs
- HOW TO BUY ETF IN MALAYSIA?
- WHERE TO BUY ETF IN MALAYSIA
- How to Buy a Foreign ETF in Malaysia?
- LIST OF ETFs IN MALAYSIA
- Which ETF is the Best Malaysia?
- HOW TO CHOOSE THE RIGHT ETF
- Why Invest in ETFs?
- Advantages of ETFs
- Disadvantages of ETFs
What is an ETF?
Exchange Traded Funds (ETFs) is an open-ended investment fund. ETFs are listed on exchanges and shares trade throughout the day, just like an ordinary stock. ETF combines the features of an Index fund and a stock, and its liquidity reflects the liquidity of the underlying basket of shares.
There are three types of ETF namely equity ETFs, Leveraged & Inverse, and fixed income & commodity ETFs. The fee range for ETFs in Malaysia is between 0.2-0.8% in management fees per year, which is relatively low.
HOW DOES AN ETF WORK?
An ETF, which is designed to track the performance of an underlying asset, becomes available to traders when a fund provider decides to create a fund and sell shares in the fund to investors.
When an investor purchases an ETF from a specific fund, they become a shareholder and own a portion of the ETF but not the fund's underlying assets. Nonetheless, ETF investors may receive lump dividend payments or reinvestments for the index's constituent stocks, the returns of which may differ from the underlying asset.
HOW IS AN ETF PRICE DETERMINED?
The price of an ETF is determined by two factors. Although the underlying value of the asset, also known as Net Asset Value (NAV), has a large influence on the ETF price, there is also a market price for the ETF that investors should be aware of.
The market price of an ETF is the price at which investors can buy or sell it on an exchange. This price may differ from the NAV of the ETF at any given time, depending on demand and supply for the ETF.
The NAV of an ETF, on the other hand, represents the value of all securities held by the ETF – such as shares or bonds and cash – minus any liabilities such as Total Expense Ratio (TER), and is divided by the number of shares outstanding.
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Types of ETFs
1. Equity ETFs
Stocks and equity are the same, as both represent the ownership in an entity (company) and are traded on the stock exchanges. Equity by definition means ownership of assets after the debt is paid off.
2. Leveraged & Inverse ETFs
Leveraged and Inverse ETFs are two types of ETF products created to produce targeted, multiple returns of the underlying index daily.
In the finance world, “leverage” is a technique that amplifies an investor’s profits or losses. Therefore, a leveraged ETF means the fund aims to provide amplified returns of the index’s daily performance.
While the word “inverse” simply means the “opposite”. Thus, in this case, inverse ETF means the fund aims to provide a return or performance that is the opposite of the index’s daily performance.
3. Fixed Income & Commodity ETFs
Fixed-income ETFs are also known as bond funds. There are fixed-income ETFs that focus on corporate, government, municipal, international, and global debt.
While a commodity ETF is an exchange-traded fund that is invested in a variety of physical commodities, including natural resources, agricultural goods, and precious metals. The commodity ETF focuses on either a single commodity or is focused on investments in futures contracts.
Best Brokers for Trading ETFs in Malaysia:
Tickmill: FCA RegulatedTake a look
IG: Over 16k stocks to tradeTake a look
FXGT: *Trading Leveraged Products is RiskyTake a look
As a new trader, you need to choose the right online trading platforms or broker to work with. Using the wrong broker could make a big dent in your investing returns. Thus, having a good broker will help you in your investment journey. Above is the list of brokerage firms and their fee structures for your online stock trading in Malaysia.
HOW TO BUY ETF IN MALAYSIA?
Since ETFs trade is just like stocks, you can buy or sell anytime during the trading day. But you need to first open a trading account with Robo-advisors, brokers, or Bursa Malaysia. You should also have a Demat account for holding the ETF units.
A Demat account (short for a Dematerialized account) is an account to hold financial securities such as equity in electronic form.
Then, you are required to furnish documents like:
- Proof of identity: Identity Card (IC), Passport, Driving License
- Proof of Address: Passport, Utility Bill
- Bank Account Details: Bank Account Statement
After you have completed these formalities, you can buy and sell ETFs through this account.
WHERE TO BUY ETF IN MALAYSIA
In Malaysia, investors can buy and sell ETFs in a variety of ways. You have the option of doing it through the Malaysian stock exchange – the Bursa Malaysia – or through an international broker.
Let's go over the various ways to buy an ETF in Malaysia.
Because ETFs can be traded on the stock market, you can easily open a trading account with Bursa Malaysia, where you can find a list of all Malaysian ETFs that are available for you to buy and sell.
International Broker Platform
You can also sign up with an international broker to get a more comprehensive list of ETFs to buy. Purchasing US stocks through a local broker can cost as little as US$25 per transaction. You can also purchase them through international brokers such as TD Ameritrade, Saxo, and Interactive Brokers. When purchasing US ETFs, some international brokers charge no commission.
How to Buy a Foreign ETF in Malaysia?
If you have already started investing in an ETF, and wonder whether or not you can buy another country’s ETF, the answer is yes.
Investing in foreign listed stocks can be beneficial for many reasons. One great idea is the diversification of assets or currency.
There are two ways for you to invest in an international ETF as below.
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1. Use Foreign Broker
Open a trading account in the country where the respective stocks originate from. For instance, open a trading account in the US to buy shares at the New York Stock Exchange (NYSE). In this way, you can keep your transaction costs to a minimum.
2. Use Local Broker with Foreign Stocks Trading
Open a global trading account in Malaysia associated with the local investment banks and security firms, and purchase foreign shares. The location of your assets will be considered local, although technically, your money is invested overseas.
LIST OF ETFs IN MALAYSIA
|ETF Name||Asset Class||Underlying Index||Fund Description|
|ABF Malaysia Bond Index Fund||Fixed Income ETF||Markit iBoxx® ABF Malaysia Boyd Index||Tracks the Markit iBoxx® ABF Malaysia Bond Index (Benchmark Index) which consists of mainly Malaysian government bonds.|
|FTSE Bursa Malaysia KLCI ETF||Equity ETF||FTSE Bursa Malaysia KLCI Index||Tracks the FTSE Bursa|
Malaysia KLCI Index that consists of 30 largest listed companies on Bursa
Malaysia by market capitalisation.
|MyETF Dow Jones Islamic Market Malaysia (DJIM) Titans 25||Equity ETF (Shariah-Compliant)||Dow Jones Islamic|
(DJIM) Titans 25 Index
|Tracks the Dow Jones|
Islamic Market (DJIM)
Index that consists of 25 largest Shariah compliant listed companies on Bursa
Malaysia by market
|Principal FTSE ASEAN 40 Malaysia ETF||Equity ETF||FTSE / ASEAN 40 Index||Tracks the FTSE/ASEAN 40 Index that consists of 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
|Principal FTSE China 50 ETF||Equity ETF||FTSE China 50 Index||Tracks the FTSE China 50 index that consists of 50 largest and most liquid Chinese stocks listed and traded on the Hong Kong Stock Exchange.|
|MyETF-MSCI Malaysia Islamic Dividend (MMID)||Equity ETF (Shariah-Compliant)||MSCI Malaysia IMI|
Islamic High Dividend
Yield 10/40 index
|Tracks the MSCI Malaysia IMI Islamic High Dividend Yield 10 / 40 index that consists of 16 to 30 Shariah-compliant securities listed on Bursa Malaysia.|
|MyETD-MSCI South East Asia Islamic Dividend ETF (MSEAD)||Equity ETF (Shariah-Compliant)||MSCI SEA IMI Islamic High Dividend Yield|
|Tracks the performance of the MSCI South East Asia|
IM Islamic High Dividend Yield 10/40 Index which
objectively and passively represent the dividend yield opportunity within
South East Asia's Shariah equity markets.
|TradePlus Shariah Gold Tracker||Commodity ETF (Shariah-Compliant)||LBMA Gold Price AM||Tracks the performance of Gold price.|
|MyETF Dow Jones U.S. Titans 50||Equity ETF (Shariah-Compliant)||Dow Jones Islamic|
Market U.S. Titans 50 Index
|Tracks the performance of Dow Jones Islamic Market|
U.S. Titans 50 Index which comprises of the 50 largest companies
(by float-adjusted market capitalization) listed on Relevant Exchanges in the United States.
|TradePlus S&P New China Tracker – USD||Equity ETF|
SEP New China
Sectors Ex A-Shares
|Tracks the performance of SaP New China Sectors Ex A-Shares Index,|
providing access to Chinese listed
companies within the
Service-oriented industries. Traded in USD.
|TradePlus S&P New China Tracker – MYR||Equity ETF||SEP New China|
Sectors Ex A-Shares
|Tracks the performance of SaP New China Sectors Ex A-Shares Index, providing access to Chinese listed companies within the consumption and service-oriented industries. Traded in MYR.|
|TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker||Leveraged & Inverse ETF||NYSE FANG+ Daily 2x Leveraged Index||Provides 2x leveraged|
exposure in the NYSE
FANG+ Index, which
consists of some of the largest global technology players.
|TradePlus NYSE FANG+ Daily (-1x) Inverse Tracker||Leveraged & Inverse ETF||NYSE FANG+ Daily 1x Inverse Index||Provides inverse (-1x) exposure in the NYSE|
FANG+ Index, which consists of some of the largest global technology players.
|TradePlus HSCEI Daily (2x) Leveraged Tracker||Leveraged & Inverse ETF||Hang Seng China|
Enterprises Futures 2x Leveraged Index
|Provides 2x leveraged exposure in the Hang Seng China Enterprises Index, which consists of China’s 50 largest securities primarily listed on the Hong Kong stock exchange.|
|TradePlus HSCEI Daily (-1x) Inverse Tracker||Leveraged & Inverse ETF||Hang Seng China|
|Provides inverse (-1x) exposure in the Hang Seng China Enterprises Index, which consists of China’s 50 largest securities primarily listed on the Hong Kong stock exchange.|
|Kenanga KLCI Daily (2x) Leveraged Tracker||Leveraged & Inverse ETF||FTSE Bursa Malaysia KLCI 2x Daily Leveraged (Price) Index||Provides 2x leveraged exposure to the companies of the Underlying Index, FTSE Bursa Malaysia KLCI Index which comprises the largest 30 companies listed on the Main Board of Bursa Malaysia.|
|Kenanga KLCI Daily (-1x) Inverse Tracker||Leveraged & Inverse ETF||FTSE Bursa Malaysia KLCI Daily Short (Price) Index||Provides inverse (-1x) exposure to the companies of the Underlying Index, FTSE Bursa Malaysia KLCI Index which comprises the largest 30 companies listed on the Main Board of Bursa Malaysia.|
Which ETF is the Best Malaysia?
Each type of ETF in Malaysia may differ depending on what you consider to be important in your trading journey. However, to see the best overall performance, our team has done extensive research on the best ETF available in Bursa Malaysia.
According to our research, TradePlus Shariah Gold Tracker is the best ETF in Malaysia so far, with a 1-year total return of 28.65%.
The TradePlus Shariah Gold Tracker, Malaysia's first and only Shariah-compliant gold ETF, allows investors to invest in gold without the hassle of buying, storing, and selling gold bars. This ETF invests in gold bars, as opposed to other investments that provide exposure to gold mining or gold-related companies. Surprisingly, as long as the minimum requirements are met, investors can redeem this ETF's units for physical gold.
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HOW TO CHOOSE THE RIGHT ETF
Define Your Investment Strategy
Define your investment strategy, including the investment objectives, investment period, and risk tolerance. It is always best to begin any financial planning by defining investment objectives first. Determine a reasonable investment period after determining your investment objectives. Finally, understand the limits of risk tolerance that you are willing to accept.
Choose the Right Asset Class
Based on your investment strategy, choose the appropriate asset class. For example, if your investment goal is to provide adequate retirement funds when you retire at the age of 55 (currently 35), your investment period is 20 years, and your risk tolerance is relatively high. This means you can bear a significant investment ‘loss' without having to sell other assets you own.
Thus, equity is most likely the best asset class for you. To better understand risk tolerance, you should take a risk tolerance quiz or test available on any investment website.
Research and Understand the Selected ETF
The ETF you select should be appropriate for the asset class you select, as well as your investment objectives.
Why Invest in ETFs?
Exchange traded funds (ETFs) are ideal for new investors as they offer many benefits, such as low expense ratios, abundant liquidity, range of investment choices, diversification, and low investment threshold.
Besides, Malaysian ETFs generally have low trading volume and big market makers. With an ETF, investors can gain exposure to a geographical region, market, industry, and commodities such as gold.
Advantages of ETFs
ETFs offer exposure to a wide range of securities such as an index and are traded like a stock. Depending on the ETF scheme, you can gain exposure to a variety of stocks, countries, industries, and commodities.
Lower annual management fees for ETFs compared to unit trusts makes ETFs economical to buy and to maintain in the long run.
Most of the ETFs track an index, and this would mean passive management for the fund house to maintain the ETF portfolio. This makes it easier for the investor to know the performance of the ETF.
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Disadvantages of ETFs
Lower Dividend Yields
There are dividend-paying ETFs, but the yields may not be as high as owning a high-yielding stock or individual stocks.
For some sectors or foreign stocks, investors might be limited to large-cap stocks only due to a narrow group of equities in the market index.
Costs Could Be Higher
If you compare ETFs to investing in a specific stock, the costs are higher. The actual commission paid to the broker might be the same, but there is a management fee for ETF that could lead to a higher cost.
Now that we know what an ETF is and how you can start investing in an ETF in Malaysia. ETFs are used by a wide variety of investors to build a portfolio or gain exposure to specific sectors. They have many advantages, especially compared to other managed funds such as mutual funds.
But just like any other investment, there will always be risks. The same goes for investing in an ETF. There are disadvantages to watch out for before placing an order. Thus, investors need to prepare themselves with the right investment strategy and risk management before starting.