Investing in ETFs in Malaysia

EXCHANGE Traded Funds (ETFs) are investment funds which simply copy an index of equities, bonds or commodities. 

This could be the Dow Jones, S&P 500, Nikkei or the ASX in Australia. For individual investors, this is one of the most valuable recent financial innovations. 

The advantage of ETF’s is that they closely mimic “the market”, as indicated by the particular index. 

Because there is no active buying and selling strategy, transaction costs for the ETF are low. Also, expenses for staff and asset analysis tools are lower, as copying an index is not exactly rocket science. 

Their lower operating costs are passed on to the customer, who will pay lower yearly management fees, compared to actively managed funds.

Another advantage is that this is the cheapest way to massively diversify your investments. The index that the ETF tracks is made up of dozens, if not hundreds, of different companies across multiple industries and geographies. ETFs are very liquid, as you trade them just like you trade stocks.

The three largest providers of ETFs in the world are BlackRock, Vanguard and State Street, together responsible for 70% of the global ETF market. 

BlackRock also has an ETF for the Malaysian market. The index it tracks is the MSCI Malaysia, an index created by Morgan Stanley Capital Investment (MSCI). 

The MSCI Malaysia represents (among others) well known Malaysian companies such as Public Bank, Tenaga, Maybank, Sime Darby, Genting, Digi, Petronas and Axiata.

Luckily, you can also buy some ETF’s on the Main Market of Bursa Malaysia. The equity ETFs that are offered allow you to invest in China (consisting of the 50 largest and most liquid companies that are traded on the Hong Kong Stock Exchange), Asean (40 stocks from across Malaysia, Singapore, Indonesia, Thailand and Philippines) and of course Malaysia, tracking Bursa Malaysia’s KLCI index.  

Additionally, you can also purchase Shariah compliant ETFs. These allow you to buy ETFs that only track companies that are Shariah compliant, for example the Thomson Reuters Asia Pacific Ex-Japan Islamic Agribusiness, which allows you to instantly invest in companies across Asia Pacific (including Australia and New Zealand) that are primarily engaged in upstream agricultural production activities. 

If you have a more conservative risk profile, you can also invest in an ETF that consist of Ringgit-denominated government and quasi-government fixed incomes securities, such as bonds, which typically are less volatile and risky that equities.

If you want to buy ETFs you will need to pay brokerage commission, stamp duty, clearing fees and GST, similar to stocks. 

If you want to buy ETFs in Malaysia, you would need to open a CDS (Central Depository System) account and a trading account with a stockbroking firm that is registered in Malaysia. 

Here’s a great guide for beginners to start investing in the stock market click on http://www.comparehero.my/blog/5-steps-to-start-investing-stock-markets. For a wider selection of ETF’s, you will need to trade on other exchanges, such as in Singapore or Australia.

Mark Reijman is co-founder and managing director of http://www.comparehero.my/ dedicated to increasing financial literacy and to help you save time and money by comparing all credit cards, loans and broadband plans in Malaysia.