Equity Malaysia- Exchange Traded Funds

Exchange Traded Funds (ETFs)

ETF is the acronym for an innovative financial product known as Exchange Traded Fund. It is an open-ended investment fund which listed and traded on a stock exchange. ETF combines the features of an Index fund and a stock. The liquidity of an ETF reflects the liquidity of the underlying basket of shares within the ETF.

Basically, there are three types of ETFs: equity ETFs, fixed income ETFs and commodity ETFs. These ETFs consists of baskets of stocks, bonds or commodities based on an index which instantly offers broad diversification and avert the risk involved in owning stock of a single company.

ETFs are listed and traded on a stock exchange. With units in an ETF, investors can gain exposure to a geographical region, market, industry or sector, commodity such as gold or oil or even a specific investment style such as growth or value. To determine the exposure, investors will need to look into the underlying benchmark or the assets held in the ETF. For example, Asia’s first Syariah-compliant ETF, MyETF- Dow Jones Islamic Market Malaysia Titans 25 (myETF-DJIM25) trades on Bursa Malaysia and tracks the Dow Jones Islamic Market Malaysia Titans 25 Index. This indicates that MyETF-DJIM25 holds shares of the 25 leading syariah-compliant listed companies in the country.

Why do investors choose ETFs?

Diversified Exposure

Unlike individual shares, ETFs consist a basket of securities with the objective of mimicking the performance of an index. This basket can be made up of shares, bonds or commodities, depending on the index that the ETF is based on.

Instead of holding a few stocks or bonds, investors can use ETFs for exposure to a diversified basket of investment products.

Cost Effectiveness

Lower annual management fees for ETFs compared to unit trusts makes ETFs economical to buy and to maintain in the long run.

Simplicity

ETFs are listed on the Main Market of Bursa Malaysia. Similar to stocks, the buying and selling of ETF units are done based on its current market price in a single transaction. Trades can be done online or through stock brokers.

Transparency

Investors know exactly which stocks or underlying assets is held in the ETF by visiting the ETF’s website, provided by its manager. Here, the list of ETF constituents is updated on a daily basis.