ETFs yet to catch on in Malaysia

KUALA LUMPUR: Exchange-traded funds (ETFs) in Malaysia have been experiencing low participation due to lack of awareness and understanding of the product as well as issues with the ecosystem, i-VCAP Management Sdn Bhd CEO Mahdzir Othman said, in launching the prospectus for the country's seventh ETF.
The first ETF was listed on the stock exchange in 2005.
"The global ETF market is currently valued at more than US$2.9 trillion and continues to grow. The reason for this is that investors globally see its value. Investors in Malaysia however have yet to appreciate and understand the key benefits of investing in ETFs. Besides investor education, efforts also need to be carried out to enhance the ETFs investment ecosystem that involves other players like the stockbrokers, regulators and other intermediaries," he told reporters at the prospectus launch for its MyETF MSCI SEA Islamic Dividend (MyETF-MSEAD) yesterday.
The total ETF market is currently valued over RM1 billion in Malaysia, comprising six ETFs listed on Bursa Securities namely ABF Malaysia Bond Index Fund and FTSE Bursa Malaysia KLCI, CIMB FTSE China 25, CIMB FTSE ASEAN 40, MyETF-DJIM25 and MyETF-MMID.3
Mahdzir said the ETF market is considered relatively small in comparison with the product's popularity outside Malaysia and hopes that the launch of more new ETFs will increase awareness and investor participation.
"The basic is still an investor education issue. I think the awareness and understanding of the product is not really getting to the masses. There have been continuous investor education activities being carried out but to get investors to put their money into it, it's not really getting the traction yet.
"Other issues are the ecosystem that needs to be addressed such as liquidity as well as getting more market makers and more participating dealers involved. It is a holistic issue that we need to address as well. ETF is a great product for investors and it's a pity to say that investors have yet to embrace this product given the key benefits and advantages that it has," he added.
He said there is also a misperception of the product whereby investors expect it to behave like listed stocks due to the fact that it is listed on the stock exchange. However, an ETF is a collective investment scheme that works like a fund such as unit trust.
Mahdzir said ETFs are cost efficient, transparent and convenient. It provides exposure to a basket of securities like unit trust but with lower fees as it is passively managed. There are also no sales or exit charges at all times when investing in ETFs except for normal transaction charges when trading through the exchange.
Scheduled for listing on May 7, MyETF-MSEAD is an open-ended fund with approved size of 500 million units. The subscription period is up till April 22 at RM1 per unit with minimum subscription size of 100 units. It offers investors immediate diversification into a basket of syariah-compliant dividend yielding stocks in Malaysia, Singapore, Indonesia, Thailand and the Philippines.
"Based on dividend yield of the index which is currently about 5.2%, we will distribute the dividend to the unitholders after deducting the management expenses, so we are looking at the region of around 4% every year. It is not a guarantee as it depends on the dividend that the fund will actually get from the underlying stocks," said Mahdzir.
He said the index currently has 22 stocks, with a range of 16 to 30 stocks. Majority of the stocks in the index are from telecommunication services, which Mahdzir said are quite generous with dividend yields. The top 10 holdings in the index includes Telekom Malaysia Bhd and DiGi.com Bhd.
Application for the fund can be done via ATMs and online, besides the conventional method of subscribing via stockbrokers, which Mahdzir said is more convenient for investors.
The total asset under management for i-VCAP is RM1.1 billion, of which RM350 million is from ETFs. The company aims to double the AUM in the next two years by launching more ETFs and has already obtained approval from the Securities Commission for its fourth ETF to be launched in the next six months.