Before we start investing, it is important to build an emergency fund of at least 6 months of expenses because any kind of investing carries risk. Once your emergency fund is set up, we can look at Exchange traded funds (ETF) aka index fund as your first new/beginner investment asset (except for Leveraged & Inverse ETFs). This is an investment you should hold for a mid/long term and check periodically every 6-12 months when you’re updating your investment portfolio. You don’t need to read financial news each day so remember to keep it sweet and simple!
Exchange traded funds (ETFs) was launched on Bursa Malaysia in 2015 but the public reception of it is still lukewarm despite having grown its asset under management to ~RM2bil in 20 available ETFs. In my opinion, it is due to lack of investor education. After all, Malaysians are not a financially savvy nation as there are more than 7.6k ETFs globally and ⅓ of those are based in the USA.
I would describe an ETF as a hybrid product of Unit Trust/Mutual Funds (UTMF) and stocks which tracks the broader market by replicating a group of shares/ an index. Below is the salient difference between the two.
There are a few types of ETFs, including equity ETFs, Leveraged & Inverse ETFs, fixed income ETFs and commodity ETFs. These ETFs consist of baskets of stocks, bonds, futures or commodities based on an index which instantly offers you the ownership in shares of many companies from different industries and countries. The likelihood that these companies would all collapse in value is very low because that would mean the entire Malaysian and world economy would collapse. As of Aug 2021, here are the categories & list of Bursa Malaysia ETFs:
- Commodity: TradePlus Shariah Gold Tracker (0828EA)
- Equity non-shariah compliant: FTSE Bursa Malaysia KLCI ETF (0820EA), Principal FTSE ASEAN 40 Malaysia ETF (0822EA), Principal FTSE China 50 ETF (0823EA), TradePlus S&P New China Tracker (0829EB & 0829EA), TradePlus DWA Malaysia Momentum Tracker, TradePlus MSCI Asia Ex Japan Reits Tracker
- Equity shariah compliant: MyETF Dow Jones U.S. Titans 50 (0827EA), MyETF Dow Jones Islamic Market Malaysia Titan 25 (0821EA), MyETF MSCI Malaysia Islamic Dividend (0824EA), MYETF MSCI South East Asia Islamic Dividend (0825EA), VP-DJ Shariah China A-Shares 100 ETF
- Fixed income: ABF Malaysia Bond Index Fund (0800EA)
- Leveraged & Inverse: Kenanga KLCI Daily 2x Leveraged ETF (0834EA), Kenanga KLCI Daily (-1x) Inverse ETF (0835EA), TradePlus HSCEI Daily (2x) Leveraged Tracker (0832EA), TradePlus HSCEI Daily (-1x) Inverse Tracker (0833EA), TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker (0830EA), TradePlus NYSE FANG+ Daily (-1x) Inverse Tracker
If someone tells you that investing is hard work and you have to pay a financial advisor to do it, they can very well be wanting a little pocket money for themselves. Do it yourself!
You can start investing in an ETF in exactly the same way as buying a stock and can trade it intraday. If you’re afraid of liquidity, there are appointed market makers to address this issue on Bursa Malaysia.
If you’re more adventurous, you can buy into the US ETFs by Fidelity, Vanguard, JP Morgan or Blackrock which have a very long proven track record through your broker as you’ll need to give them info on the underlying assets you’d like to invest.
As of 5 August 2021, the 1 year performance of Bursa ETF for the highest (+185%) and lowest (-42%) belongs to the Leverage and inverse ETF which is only recommended by more seasoned investors and you would need to pass a Bursa Malaysia program to participate.
The top 3 (non Leveraged and inverse) were MyETF Dow Jones US Titans 50 @ +36%, TradePlus S&P New China Tracker @ +25% and Principal FTSE China ETF @ +10.7%.
In a nutshell, ETFs are suitable for:
1) mid/long term investors who wants an exposure in a variety of stocks without the need to do stock analysis
2) cost savers – no need to pay multiple brokerage fees, take FX risks (If you’re earning Ringgit and investing in Ringgit), no sales charge, low annual management fee <1%
In an effort to increase ETF participation, Bursa Malaysia is waiving ETF stamp duty of 0.1% until end 2025 and there is a cash back promotion of RM100 on Touch & Go eWallet when you invest >RM2k in ETFs.
Reference: https://www.bursamarketplace.com/etf-cashback/
