As a passively managed investment vehicle that tracks an index, ETFs generally have lower all-in expenses compared to their index unit trust counterparts. Trading fees, which are similar to buying normal shares, are significantly lower than unit trust sales charges. ETFs are traded during stock market opening hours and not at the end of the day as with unit trusts.

With the dual attribute of being an index fund and being listed and traded on the exchange, ETFs are commonly used by both medium and long-term investors for short-term trading. With both Shari’ah and conventional ETF offerings available on Bursa Malaysia, investors have a growing selection of these innovative products to consider.

Now, let’s take a look at the three ETFs that are available in the Malaysian capital market:

MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM25)
The first Asian Shari’ah-compliant ETF, MyETF-DJIM25, was listed on the main board of Bursa Malaysia at end-January 2008.

With MyETF-DJIM25, investors can acquire units of the fund with a single transaction, and immediately invest in the largest 25 Shari’ah-compliant companies trading on the stock market, as determined by the Dow Jones Islamic Market Malaysia Titans 25 Index. This index was launched by Dow Jones at the start of the year. Top holdings are large blue-chip companies including Sime Darby Bhd, IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Digi Bhd, MISC Bhd and Gamuda Bhd.

As a Shari’ah-compliant asset, MyETF-DJIM25 complies with Islamic investment laws. Islamic assets must appoint a Shari’ah advising committee to ensure that all Shari’ah principles and guidelines are established and practiced. MyETF-DJIM25 is also the first national equity ETF in the country and seeded by government-linked investment companies.

From an industry perspective, MyETF-DJIM25 offers investors exposure to the plantation, telecommunication, oil and gas, construction, infrastructure and transportation industry. This makes MyETF-DJIM 25 a well diversified core holding in an investment portfolio. Although labelled as an Islamic or Shari’ah compliant asset, MyETF-DJIM25 would appeal to all investors regardless of faith. In short, anyone accessing the market can benefit from the low-cost, instant diversification offered by MyETF-DJIM25.

As with all ETFs, returns of MyETF-DJIM25 will generally correspond with the performance of the index. However, as most of these stocks are held in the composite benchmark index, performance of MyETF-DJIM25 is expected to move in tandem with the broad market.

FBM30ETF
FBM30ETF was the first equity ETF to list in the Malaysia market. This passively managed fund falls in the conventional asset category which means that it does not comply with Shari’ah. Designed to track performance of FTSE Bursa Malaysia Large 30 Index, FBM30ETF holds a basket of shares comprising of the 30 largest companies by market capitalisation. This allows investors to gain exposure to the biggest companies in the country with a single transaction as opposed to buying one or two shares in individual companies.

As of end of last year, FBM30ETF’s constituents were blue chip companies including Malayan Banking Bhd, Bumiputra-Commerce Holdings Bhd, Tenaga Nasional Bhd, Public Bank Bhd and Telecom Malaysia Bhd.

ABF Malaysia Bond Index Fund (ABFMY1)
The first ETF to list in the country holds a basket of fixed income securities. ABFMY1 offers investors a low-cost method to invest in ringgit-denominated government and quasi government debt securities. Bond ETFs such as ABFMY1 would also suit investors with a more conservative risk profile and those who are looking for a savings instrument.