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Market set to grow as investors look for alternative products


Mahdzir: 'We need more depth and variety for investors.'Tajuddin: 'The exchange is in regular dialogues with potential ETF issuers.'

Mahdzir: 'We need more depth and variety for investors.'Tajuddin: 'The exchange is in regular dialogues with potential ETF issuers.'

THE exchange traded fund (ETF) scene in Malaysia has been relatively quiet while other countries in the region have grown far above and beyond.

But as investors look for more alternative products to invest in amid the rebound in the global economy, the local ETF market could start to gain more traction in the coming years.

ETFs are investment funds traded on the stock exchange. Only yesterday, the total number of ETFs on Bursa Malaysia had been bumped up to six with the listing of MyETF MSCI Malaysia Islamic Dividend (MyETF-MMID) by i-VCAP Management Sdn Bhd.

MyETF-MMID made its debut at RM1.015, a premium to its net asset value of RM1.0033 and the initial issue price of RM1 per unit. It closed at RM1 at 5pm yesterday with 451,000 total units traded.

The open-ended fund with an approved fund size of 500 million units, tracks the MSCI Malaysia IMI Islamic High Dividend Yield 10/40 Index, which comprises Malaysia’s syariah-compliant dividend yielding stocks listed on Bursa.

Prior to that, the last time there was an ETF listing on Bursa was four years ago when CIMB Bank Bhd launched CIMB FTSE Asean 40 Malaysia , and CIMB FTSE China 25.

Apart from the two ETFs launched by CIMB, the other ETFs on Bursa are ABF Malaysia Bond Index Fund , FTSE Bursa Malaysia KLCI and i-VCAP’s flagship fund, MyETF-DJIM25.

Comparatively, Singapore has 96 ETFs on its exchange and Thailand has 16 ETFs. Meanwhile, the Philippine Stock Exchange had its first ETF listing in December last year.

The global ETF market is currently valued at some US$2.4 trillion and continues to grow. Malaysia’s contribution currently stands at a mere RM1bil, hence there is huge room for growth, says i-VCAP chief executive officer Mahdzir Othman.

“Investor education has to be continuously undertaken by the manager like us. The level of awareness is not there yet, and although it is improving it can do better. Given that ETFs have grown extensively globally, we don’t want to be left behind,” he says.

iVCAP is an investment management services firm that strictly deals with shariah-compliant assets. Set up in 2007, the unit of government-mandated fund Valuecap Sdn Bhd, i-VCAP also provides services for wholesale funds and private mandates.

He opines that the local ETF market will grow gradually. Although still in a nascent stage, he says investor interest in the product is increasing. “The question now is to translate the awareness into trading of these ETFs. We need to see a bit more liquidity in the market for ETFs to get more attention and interest coming from investors,” he says.

Mahdzir told StarBizWeek that the company aims to launch more ETFs in the near future. This could be ETFs that are geographical-based, either regional or country specific, as well as ETFs with sector-specific stocks as its underlying asset.

“We feel for the market to move further, we need more depth and more variety for investors,” he says. For every new ETF to be rolled out, i-VCAP is looking at a fund size of between RM20mil and RM50mil.

“When the awareness of the products start to kick in, we will probably launch ETFs to the tune of RM100mil in size,” he adds.

Although many liken ETFs to unit trust funds, the striking difference among the two is that the former is listed and traded intraday on a stock exchange, much like stocks, while traditional unit trust funds are not listed.

“It behaves like a unit trust but it can be traded like a stock,” Mahdzir says.

The main aim of ETFs is to track the performance of an index, as well as provide investors with access to a variety of markets and asset classes.

The advantage of investing in ETFs is that it is tax efficient, as well as liquid and transparent, among others.

Because ETFs are passively managed as it has a pre-determined strategy in tracking an index, it enables the product to have low management fees compared to traditional unit trust funds which are actively managed.

Bursa chief executive officer Datuk Tajuddin Atan adds: “The recently launched MyETF-MMID for example charges a management fee of only 0.4% per annum.”

To promote the ETF industry in Malaysia, the local bourse is encouraging potential ETF issuers as well as raising awareness among the investment community.

“The exchange is in regular dialogues with potential ETF issuers, both local and foreign, to have more ETFs listed on the exchange,” Tajuddin says in an e-mail reply.

This is with the aim to encourage more issuers to come on board, and to create an environment ripe for growth of the ETF market.

Bursa also conducts market engagements with dealer representatives and remisiers to provide more in-depth knowledge on the various products it offers.

It has held workshops in Kuala Lumpur and Kuching, which saw more than 100 participants in attendance.

The upcoming workshop in Penang already has about 200 participants registered.

He says the demand for different types of investment products depends very much on investors’ objectives, the investment time horizon as well as the investors’ risk appetite.

“By nature, ETFs are a mid to long term investment vehicle. If these meet with investors’ objectives, then ETFs is an appropriate choice,” Tajuddin says.

Meanwhile, Mahdzir says i-VCAP’s strength lies in its shareholder, Valuecap, which in turn is owned by Khazanah Nasional Bhd, Kumpulan Wang Persaraan and Permodalan Nasional Bhd. “They don’t interfere with our operations but we have a strong shareholder backing,” he says.

i-VCAP’s flagship fund, myETF-DJIM25 which is the first shariah ETF in Asia and the largest of its kind in the world to date, has a net asset value of RM304.2mil.

Mahdzir is looking at having a growth of some 20% to 30% for the fund.

He also expects to see i-VCAP’s assets under management growing to RM1bil by the end of this year, from the current RM576.7mil.

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