Top 10 ETFs in Malaysia for 2024
The ETF trading market in Malaysia has experienced significant growth in recent years, attracting both local and international investors. Exchange traded funds have become increasingly popular due to their ability to provide exposure to a wide variety of investments at a relatively low cost. This article provides an overview of ETFs and guidance on how to select top ETFs in Malaysia. Follow us and open the door to ETF trading in Malaysia.
What are ETFs?
What are ETFs？An ETF, or etfs exchange traded funds, is a type of investment fund that trades on stock exchanges in a manner similar to individual stocks. ETFs provide investors with the ability to invest in a diverse range of assets, including stocks, commodities, bonds, and more, by purchasing a single security that tracks an underlying index or basket of assets.
There are various types of ETFs, such as equity ETFs, commodity ETFs, fixed-income ETFs, and currency ETFs. By offering investors a diversified portfolio of assets within a single investment, ETFs facilitate access to markets and industries that may otherwise be out of reach.
Moreover, ETFs are more flexible than traditional mutual funds, which are priced and traded only at the end of each trading day. Additionally, ETF trading in Malaysia enjoys a more competitive fee structure than other investment vehicles.
In general， ETFs have gained popularity due to their flexibility, diversification, and low fees. Consequently, they have become an essential component of numerous investors’ portfolios.
Why invest in ETFs in Malaysia?
ETFs offer a versatile and cost-effective way to access various markets and assets, making them an attractive addition to any investment portfolio. ETFs can track a broad market index, providing diversified exposure to various sectors and asset classes. Here are several compelling reasons why ETF trading in Malaysia is worth considering:
Diversification
One of the most significant advantages of investing in ETFs is the ability to broaden diversification across various sectors, regions, and asset classes. By holding a single ETF, investors can gain exposure to a range of underlying assets. ETFs provide exposure to the broader market, allowing investors to diversify their portfolios across different sectors and regions. ETF trading in Malaysia caters to a wide range of investment demands.
Low Cost
ETFs typically offer investors lower costs than actively managed funds due to their passive management. This translates to lower management fees and no upfront fees for investors. This cost efficiency, a hallmark of ETF trading, makes it an optimal choice for those seeking to maximize their capital's growth potential.
Liquidity and Flexibility
ETFs are traded on an exchange like stocks, offering high liquidity and allowing investors to buy or sell shares at any time during market hours at market prices. This helps investors respond quickly to market changes and adjust their portfolios accordingly.
Less volatility in Broad Market Index
Investing in a basket of stock ETFs, or other portfolio ETFs, is much less volatile compared to a single stock due to the diversification of risk, making it more tolerant to market volatility. This can be seen as a prudent strategy, as it spreads out potential losses across various assets.
Regulatory Strength And Transparency
The Securities Commission Malaysia (SC) and Bank Negara Malaysia (BNM) have established a robust regulatory framework to ensure a secure and reliable environment for ETF trading in Malaysia. Thus, the transparency of ETFs is enhanced, and their holdings and performance metrics are readily available for review.
Shariah-Compliant Options
Malaysian investors who wish to invest according to Islamic principles have a range of Shariah-compliant ETFs to choose from. These ETFs adhere to Islamic investment criteria and exclude certain sectors, such as alcohol, tobacco, and gambling, making them suitable for investors seeking to align their ETF trading with their ethical and religious values.
In summary, ETF trading and investing not only aligns with the global trend of financial investment but also capitalizes on the growth opportunities within the Malaysian economy.
Top 10 ETFs in Malaysia
When it comes to the top ETFs for Malaysia in 2024, there is no set template. We have selected ten quality ETFs for your consideration based on their overall performance:
The Vanguard S&P 500 ETF
VOO, the Vanguard S&P 500 ETF, is a popular option for Malaysian investors who are looking to gain access to the U.S. stock market. As the leading ETF in Malaysia, VOO provides broad exposure to the top 500 companies. VOO tracks major indexes like the S&P 500, providing investors with an efficient and low-cost way to achieve market returns. VOO has maintained an increase of about 15.7% in the last three months. In April 2024, VOO attracted a total of US$7.62 billion in net inflows. As a great addition to any diversified portfolio, VOO is deservedly one of the top ETFs in Malaysia.
Invesco QQQ Trust ETF
The Invesco QQQ Trust Series 1 is a very popular ETF that tracks the Nasdaq 100 Index (NDX.GI), which consists of the 100 largest non-financial companies on the Nasdaq market, primarily technology stocks. And this ETF is managed by Invesco, a leading global independent investment manager. Focuses on innovation and technology, QQQ is often cited as Malaysia's premier ETF for investors seeking exposure to the technology-driven economy.
SPDR Gold Trust ETF
As the world’s largest gold ETF, GLD holds physical gold directly, providing investors with a convenient way to participate in the gold market. As of the most recent update on June 10, its position stood at 835.67 tons, which demonstrates its large asset management scale. With increased volatility in global financial markets and rising inflation concerns, GLD offers an effective protection strategy. Additionally, its low expense ratio makes it an attractive and cost-effective option for investors.
The Vanguard Energy ETF
The Vanguard Energy ETF (VDE) focuses on the energy sector and tracks the performance of the S&P Energy Select Sector Index, which comprises large energy companies listed on major U.S. exchanges. VDE has always been known for its low-fee structure, with a management fee of just 0.09%, which contributes to higher net returns. It is one of the top ETF trading options for Malaysian investors, particularly in light of the global energy transition.
The Direxion Daily Semiconductor Bull 3X Shares ETF
SOXL aims to triple the daily return of the S&P Semiconductor Select Sector Index, making it possible for investors to earn more than if they had invested directly in the sector's stocks. This aligns with the objective of seeking higher returns. The semiconductor industry is at the center of technological innovation, and growth can be expected as global digital transformation continues to accelerate.
The GraniteShares 2x Long NVDA Daily ETF
The GraniteShares 2x Long NVDA Daily ETF (NVDL) is a leveraged ETF that offers investors the opportunity to double the performance of NVIDIA Corporation stock on a daily basis. This implies that if NVDA stock increases by 1%, NVDL would theoretically rise by 2%. The characteristics of this type of ETF make it ideal for short-term trading. It is optional for investors who want excess returns over and above the rise or fall of the index. NVIDIA's stock has demonstrated robust performance for its strong market position in AI. As the demand for AI and high-performance computing increases, investors may reap positive returns.
iShares Core U.S. Aggregate Bond ETF
The iShares Core U.S. Aggregate Bond ETF tracks the performance of the Barclays U.S. Aggregate Bond Index. This broad market coverage helps balance equity exposure, especially during times of equity market turmoil. US dollar-denominated bonds can also serve as a currency hedge when the Malaysian Ringgit (MYR) depreciates against the US dollar. AGG's management fees are very low, with a total annualized expense ratio of only 0.03%. Large Asset Under Management (AUM) of AGG allows investors to enjoy small bid-ask spreads when buying and selling.
FTSE Bursa Malaysia KLCI ETF
The FTSE Bursa Malaysia KLCI ETF (0820EA) is Malaysia’s first equity-based ETF that provides investors with exposure to the FTSE Bursa Malaysia KLCI Index, a benchmark index of the Malaysian stock market. The index represents the top 30 listed companies (representing the core sectors of the Malaysian economy) by market capitalization on Bursa Malaysia. This ETF tracks a broad market index, providing exposure to the top companies in Malaysia. Investors of FBMKLCI ETF can achieve broad market participation and diversification. Since its listing and trading in 2007, this ETF has become a well-established investment vehicle and enjoys good market representation.
ABF Malaysia Bond Index ETF
ABF Malaysia Bond Index ETF (MYABND) tracks the ABF Ringgit Bond Index, which focuses on the local Malaysian bond market. The Malaysian bond market is known for its relatively stable yields and low default rates. MYABND provides investors with an avenue for regular interest payments and potential capital appreciation, especially for investors seeking a stable source of income. In addition, the Malaysian government may offer a number of tax incentives, such as income tax relief, to encourage the development of the local bond market. MYABND also provides exposure to emerging markets within Malaysia's bond market, making it an attractive option for those looking to invest in developing economies.
MyETF Dow Jones Islamic Market Malaysia Titans 25
This ETF tracks the Dow Jones Islamic Market Malaysia Titans 25 Index, which consists of the 25 largest Sharia-compliant companies in Malaysia. As one of the premier Islamic Market ETFs in Malaysia, MYETF DJIM MT25 caters to faith-based investors by adhering to the Shariah investment guidelines and excludes companies involved in businesses such as alcohol, tobacco, gambling, weapons production, and loan sharking. This means that investors can invest with peace of mind without worrying about violating their religious beliefs.
How to pick the top ETFs for your portfolio?
For Malaysian investors navigating the thriving ETF landscape, selecting the optimal ETFs is pivotal to portfolio success. Here are key considerations tailored for ETF trading in Malaysia to help you select your ETFs:
Investment Goals and Risk Tolerance
Start by identifying your financial goals, including capital appreciation, current income, or risk mitigation. The optional ETF for your portfolio will correlate directly with these goals. For example, KLCI-tracking ETFs may appeal to those seeking broad market exposure, while sector-specific offerings may attract targeted growth strategies.
Expense Ratios
In the realm of ETF trading, a low expense ratio can lead to better returns over the long term. Seek out competitively priced options to maximize returns. Keep in mind that cost efficiency is a cornerstone of successful ETF trading in Malaysia.
Historical Performance
Past performance can provide some insights. It is advisable for investors to scrutinize the ETF's historical performance alongside the ability to track its underlying benchmark. A low tracking error indicates effective management, a hallmark of the quality ETFs in Malaysia. Additionally, consider ETFs with a consistent dividend history.
Liquidity and Volume
A vibrant ETF trading environment is essential. Focus on ETFs with high daily trading volumes to ensure easy entry and exit and allow for easy buying and selling without significant price fluctuations. High liquidity in ETFs provides easy access to global equity markets, ensuring smooth trading and minimal price fluctuations. This is especially important for active traders engaging in ETF trading in Malaysia.
Tax Implications
Tax policies directly impact ETFs’ net returns. ETFs are more tax-efficient than mutual funds, but tax implications can still vary. Understanding the tax differences among various types of ETFs and employing tax-efficient strategies can enhance after-tax returns. For example, Shariah-compliant ETFs usually enjoy tax benefits in Malaysia. Additionally, investing in ETFs that provide exposure to international markets can offer tax benefits due to favorable tax treaties and the potential for tax credits on foreign dividends.
ETF Provider
A strong reputation means reliable performance. Investors should seek providers with regulatory compliance and transparent operations, particularly in a market susceptible to external economic influences. Trustworthy providers not only ensure adherence to Shariah principles for Islamic investors but also offer diverse ETF products.
Conclusion
In essence, exchange traded fund trading in Malaysia is a process that is based on meticulous research, strategic planning, and adaptability. Whether you seek domestic exposure, regional diversification, or even thematic plays, ETF trading presents a myriad of opportunities for investors in 2024. Understanding the nuances of each ETF and selecting your optional ETF is key to harnessing the potential of ETF trading in Malaysia to enrich your investment journey. If necessary, consultation with a financial advisor is recommended before making any investment decisions.
