Low-Cost Passive Investing: Exchange Traded Funds in Malaysia

Since the beginning of 2015, I had spent a few weekends doing research on how to invest in low-cost passive funds like Vanguard index funds or exchange-traded funds (ETFs) in Malaysia. There are too many stock investment books praising their merits like:

If you were lazy or too busy and couldn’t afford to spend time to manage your own portfolio but at the same time you would like to invest in the stock markets for more than 20 years, then buying index funds would be the “best” choice for you since it could provide you the “best” return. This is the conclusion after tons of studies and researches published in the books above.

What is an index fund? It is just a basket of stocks or bonds or other asset classes that can be bought at low-cost to achieve broad diversification. Examples of index: Standard & Poor’s 500, FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBMKLCI), etc. Example of index funds: Vanguard 500 Index Fund (VFINX).

What is an ETF? It is just a fund that tracks a particular index. The difference between an index fund and an ETF is that the latter can be traded in a stock exchange.

A search from Google turned out that there is a few online brokers offering these funds like TD Ameritrade, Charles Schwab, Fidelity, Etrade and etc.

The Best Online Brokers of 2014

The Best Online Brokers of 2014

Source: Barrons
 

These brokers have their goods and bads among them and they are all based in the US. In order to open an account with them, I need to have an address in the US! Some of them allow international investor like TD Ameritrade, Charles Schwab (the latter requires $10000 deposit).

I tried my luck with TD Ameritrade by filling the online form, printed out and signed the form and sent it together with other supporting documents to the broker.

However, one month passed and there was no news from the broker. And today, I did a search and found this info from Lowyat.net dated 30 June 2014:

TD AMERITRADE is currently unable to open new accounts for clients with mailing and/or physical addresses in Malaysia. This is a result of a thorough legal review of established regulations in your country. We appreciate your interest in opening an account and wish you the best in your investment needs.

Thank you for contacting TD AMERITRADE and allowing us to assist you.

Sincerely,

Monica Murray
Client Services, TD Ameritrade
TD Ameritrade, Inc.

So the conclusion is that TD Ameritrade does not accept investors from Malaysia. πŸ™ Unless I use other’s address or I live in America or Singapore, then I couldn’t open the account with TD Ameritrade.

Update 150228: As of today 28 of February 2015, after one month and a week since I mailed the registration documents, I received a welcome email from TD Ameritrade. So the latest conclusion is that TD Ameritrade accepts Malaysian investors too. I might write in a separate post on the process to open an account at TD Ameritrade. πŸ™‚

Exchange Traded Funds in Malaysia

However, all is not lost yet. There are actually 6 ETFs listed on the Main Market of Bursa Malaysia. The bad news is they are mainly only covering the Malaysian and part of the Asian markets but not including the world markets like Europe, the US, etc. We are not able to achieve broad diversification with these ETFs but still they are better than none. πŸ™‚

So we can still buy ETFs from Malaysian stock exchange.

Exchange Traded Funds (ETFs) on Bursa Malaysia

Exchange Traded Funds (ETFs) on Bursa Malaysia

Source: Bursa Malaysia
 

I checked, these funds are available in i*[email protected] and HLEBroking trading platforms.

Equity ETF

  • FBMKLCI-ETF (0820EA) since 19 July 2007

    FTSE Bursa Malaysia KLCI ETF (FBMKLCI-EA) is the first equity ETF in Malaysia. This ETF was initially known as the FBM30etf and renamed as FBM KLCI etf when its underlying index, the FBM KLCI was launched on 6 July 2009.FBM KLCI etf tracks Malaysia’s benchmark index. This ETF gives investors exposure to the 30 biggest listed companies that collectively represent the Malaysian stock market.

    FBMKLCI-EA

    FBMKLCI-EA

  • CIMB FTSE ASEAN 40 MALAYSIA (0822EA) since 9 July 2010

    CIMB FTSE Asean 40 ETF Malaysia is the first cross-listed ETF in Malaysia. This ETF was primarily listed in Singapore in 2005 and tracks the FTSE/ASEAN 40 Index Fund. It’s a tradable index consists of 40 constituent stocks from 5 ASEAN countries namely Singapore, Malaysia, Thailand, Indonesia and Philippines. This ETF is specially designed to track the performance of ASEAN-5 markets.

    CIMBA40

    CIMBA40

  • CIMB FTSE Xinhua China 25 (0823EA) since 9 July 2010

    CIMB FTSE CHINA 25 is the first foreign underlying ETF launched in Malaysia. It tracks the FTSE China 25 index that gives exposure to 25 largest and most liquid Chinese stocks listed and traded on the Hong Kong Stock Exchange.

    CIMBC25

    CIMBC25

Equity ETF (Shariah Compliant)

  • MyETF-DJIM25 (0821EA) since 31 January 2008
    MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM25) is the first national ETF and the first Shariah-compliant ETF in Asia. This ETF complies with Islamic investment laws and is supervised by a Shariah advising committee. As a national ETF, MyETF-DJIM25 is managed by a government-linked investment company.MyETF-DJIM25 gives exposure to 25 largest listed Shariah-compliant companies listed on Bursa Malaysia.

    MYETFDJ

    MYETFDJ

  • MyETF MSCI Malaysia Islamic Dividend (0824EA) since 21 Mar 2014
    MyETF MSCI Malaysia Islamic Dividend or MyETF-MMID aims to provide investment results that closely correspond to the performance of the Benchmark Index, which is a price return index comprising 16 to 30 Shariah-complaint securities listed on Bursa Securities, with higher than average dividend yield that are deemed both sustainable and persistent by MSCI.

    MYETFID

    MYETFID

Fixed Income ETF

  • ABFMY1 (0800EA) since 13 July 2005
    ABF Malaysia Bond Index Fund (ABFMY1) is the first ETF to list in the country. This is a bond ETF that suits investors with a more conservative risk profile and those looking at diversifying their portfolio with fixed income.ABFMY1 gives exposure to Ringgit denominated government and quasi government debt securities.

    ABFMY1

    ABFMY1

With these low cost investment alternatives available, it is quite convenient to just mindlessly keep buying these funds which guarantee the “market” return over long term. However, all the studies mentioned in the books listed in the beginning of this post are done in the US market which is one of the most complicated and sophisticated markets. In other words, the US market is quite efficient therefore the indexing investing works well. The Asian markets, especially the Malaysian market, are quite new and young and therefore not efficient. This means passive investing by indexing in Malaysia might not work as well as expected.





  • Hi Chok Leong,

    Was just doing some research on low-cost investing in Malaysia (I write a little about personal finance too), and came across your site. Just wanted to say Hi, and thanks for the very helpful information.

    • Hi. Glad that the info is helpful. I just jot down what I learned along the way. Thanks for visiting my site. πŸ™‚

  • Henry Tan

    Thanks for the info! Yes I read some articles that ETFs in US are very efficient and can be a great investment vehicle under our investment portfolio. unfortunately the ones in Malaysia are less popular, less volume and hence low liquidity.

    • Thanks for commenting. Most of the studies on index and ETF funds are done in the US. There is no detailed study about the return of these funds in Malaysia yet that I can find since they are still young. πŸ™‚ I think stick to the funds in the US is a better choice if you were into passive investment since they have long track record backed by many studies. Even Warren Buffett said so. So I think I would not be too wrong following his advice. And you too. πŸ™‚

  • Kerry

    so U.S. ETF is not a good option for Malaysian? ;( My friend who lives in U.S. recommended Vanguard ETFs, but looks like it’s just for Americans. Recently, started to think about small investment. Any recommendations?

    • No good nor bad. There are just more choices in the US (more ETF suppliers like iShares, Vanguard, PowerShares, WisdomTree, Guggenheim, etc). You can buy the Vanguard fund through international broker like TD Ameritrade (Asia).

  • Kelvin Shak

    Hello! Just started to read about low-cost investing and stumbled across your website. Want to know how is it going for you for the TD Ameritrade? Are your stocks being automatically handled by them or do you have to manually trade yourself?

    Thank you!

    • TD Ameritrade serves its purposes well. I am happy with it.

      TD Ameritrade is just a broker who offers a range of products (options, stocks, ETFs) for you to purchase. So you need to trade manually by yourself. You pick your own stocks or funds to buy and sell. You look after your own portfolio. Basically, if you are a long term investor, there is nothing much you need to do actually.

      • kamal mohamed

        how about the fees charged by td ameritrade Sir? Are the fees good?

        • Initially I joined TD Ameritrade Inc. which offers commission-free ETFs (no need to pay commission when you buy ETFs). However, due to their policy change, I need to move my account to TD Ameritrade Asia.

          The commission at TD Ameritrade Asia is $10.65 per trade. It is not the cheapest. But still acceptable.

  • Jessie

    Hi! Great article. Thank you so much for sharing your knowledge. I am just starting out and have been learning about low cost and passive investing.

    I am wondering if I should buy ETF that tracks the Malaysia market or buy ETF listed on Bursa Malaysia. What’s your opinion on this?

    And it’ll be helpful if you can update us with your journey with ETF investment so far. Thank you!

    • ETF is just like an another “stock” to invest. One of the purposes of ETF is to make it easy to diversify at reduced cost. So I think there is no one ETF that is better than the other. Different ETF basically tracks different stocks.

      Based on my experience investing in ETF from Bursa, it performs better (less volatile) than my mutual fund in my PRS account. It also gives dividends that is comparable to fixed deposit.

      Also, I invest in ETF from the US. It performs well too recently due to Trumponomics.

      • Jessie

        Thanks for the reply! That’s really interesting to learn from you that ETF you purchased from Bursa performs well. As some people are worried and often highlight the liquidity factor of the ETF listed on Bursa because generally Malaysians are not yet as exposed to ETF as compared to US. And also just like you mentioned, most research were done based on the US market.

        If you don’t mind can you share with me what’s your rule of thumb when it comes to ETF allocation? Like how many % bonds ETF, US market ETF % and etc. Thanks!

        • My rule of thumb: 100 % in equity. 0 % in bond. This is a subjective question. It is all up to your own preference.

          • Jessie

            Thank you! Based on your experience, is 10% of annual return from purely ETF investment alone a realistic goal for a newbie in investment?

          • It is a realistic goal if you look at the long term (5 years and beyond) return from Malaysian market. If you reinvest your dividend, you could get more return in the future. However, there is no guarantee.

          • Jessie

            Thank you! You’re an inspiration. Will keep reading your blog πŸ™‚ keep up the good work!

  • Teck Xhen Wong

    Hi! I would like to ask are there any tax implications for both ETF and Mutual Funds? Moreover, if i’m not mistaken, US tax law requires the withholding of tax for non-US persons (non-resident aliens) at a rate of 30% on payments of US source stock dividends, short-term capital gain distributions and substitute payments in lieu. In short, would it affect the return from Vanguard’s funds?

  • kum hon Wong

    Hi Chok Leong,
    Do you have expenses ratio for the above mentioned ETFs? Trying to compare with those ETFs listed in SGX. Example CIMB 40 etc

  • Hi Chok Leong,

    Great write up and thank you. Just thought of going into this when unread Unshakeable by Tony Robbins. Looks like it is harder to do so if you are a Malaysian and not living in the US.

    As you something, how do you start this (investing) like through a broker etc? Plus, What is the minimum (thinking if doing it monthly basis)?

    Please advise and thank you!
    R

    • I started investing by first opening the trading accounts (CIMB ITrade or HLEBroking or TDAmeritrade Asia).

      There is no minimum to invest. I invest what I can afford to invest. That’s it.

  • JS

    Hi Chok Leong,
    i’m Malaysian and i’ve opened a TD Ameritrade Asia account, right now i’m trying to fund my account,
    they only give me Wire Instructions like this, i printed it out https://uploads.disquscdn.com/images/8989984f7f61447ae70c5a2a7bb9f77e001469223a986dc454d3ea3417518687.jpg
    the banker has never done this kind of transfer before, he said he needed more documents but he’s not sure what document i should provide, he told that the other customers provide a lot of documents, but the TD Ameritrade Asia only give me this, i’m very confused right now

    • The instruction form you attach here has enough detail for the transfer. You need to provide the payment detail (your name and your TD Ameritrade account number and your address) so that TD Ameritrade Asia knows what to do with the fund.

      If going to bank does not work, you can try online transfer.

      • JS

        the banker said they need something like ‘details investment propose’
        i’ve tried over 5 banks, they don’t have any experience and don’t know what to do

  • Rocky Singh

    Hi Chok Leong

    (1) Any idea the returns listed in fundsmart y-o-y are net of commissions/ charges?
    For eg: in the below link 10 year return is 14.22%
    https://www.fundsupermart.com.my/main/fundinfo/Kenanga-Growth-Fund-MYKNGGF

    (2) Are Malaysian ETFs available in Maybank share trading platform? Any idea?

    (3) What has been your experience with Malaysian ETF returns? XIRR?

    • (1) The return is usually calculated before commissions and fees.

      There are lots of studies that show that investors earn less than the reported return of any funds. This is due to (a) the cost and expense, (b) the timing of purchases and (c) the investor’s own behaviour bias facing uncertainty.

      Therefore, the reported returns of the fund is for reference only.

      (2) All Malaysian ETFs will be available in Bursa stock exchange. This is regardless of trading platform.

      (3) I didn’t do any study about the ETF returns in my portfolio. So no answer for this. My experience is that the return tends to follow the return from the Malaysian market.

  • Fabian

    Hi Chok Leong,

    It seems to me that Malaysians can only invest in ETF’s and not Index funds? Or are they considered the same in Malaysia? Been searching online for index funds in Malaysia but only had luck finding ETF’s.

    • You can buy the index through ETF since ETF tracks the index e.g. FTSE Bursa Malaysia KLCI Index. I don’t how to buy the index directly.

      There are mutual funds that offer index funds. But mutual funds costs are higher.

      • Fabian

        I see. Too bad there isn’t a Vanguard 500 equivalent in Malaysia πŸ™