ETF, the full name of “Exchange-Traded Fund”, investment products in between stocks and funds. Maybe investors in Malaysia are relatively new to it, but ETFs are very common abroad. ETFs can be understood as “funds that can be traded on exchanges”, that is, you can directly invest ETFs on the stock exchange market.

The Equity ETF works by tracking an index, raising funds to purchase all the stocks in the index, then subdividing them into small units and selling them on stock exchanges.

For example, if ETF A tracks KLCI, it will hold shares according to the proportion of the constituent stocks in KLCI. As long as new companies enter KLCI, ETF A must adjust its holdings according to the index, including buying newly entered shares and sell the stocks of companies kick-out by the index.

If ETF A is selling for RM1 per unit, currently holds 30 stocks. Therefore, only paying the price of RM1 per unit and investing in ETF A is equivalent to investing in 30 companies with the largest market capitalization in Malaysia.

The rise in the stock prices of these 30 companies will also be reflected in ETF A stock prices. Similarly, ETF A will also give investors dividends given by 30 companies.

ETF advantages:

  1. Pay stable dividends like equity and enjoy stock price returns

  2. Reduce risk because you invest in a basket of equities instead of a single counter

  3. Reduce costs, you can invest in multiple counters  by paying a brokerage fee once

  4. ETF manager professional management

ETF disadvantages:

  1. Management fee must be paid, usually 0.0x-0.xx% per year

  2. Bad counter in the basket may drag down overall performance

Today, the market is full of various ETFs, including:

  • Leveraged ETF, adding futures elements to increase returns

  • Short market ETF, income comes from index decline

  • commodity ETF

  • active ETF,not tracking any index

This site will not introduce all ETFs involving futures, so I will focus on equity ETFs, including passive index ETF and active

The above article is purely information sharing, not investment or trading advice. For investment advice, please consult professional investment institutions.  This site is carried out in a personal hobby, non-profit manner, without any interests, not related to any kind of business or investment courses, no sales of investment books, not managing any public/private funds, no sales/promotion of any investment products