A compelling investment strategy

TheStar Sat, Mar 13, 2021 10:10am - 4 months ago View Original

Speaking on the benefits of investing in ETFs, Chong Lee Choo, (pic) director of ETF and innovation lab at Affin Hwang Asset Management, points out: “ETF is a hybrid investment tool that combines the best features of unit trust funds and stocks.”

INVESTORS’ relative unfamiliarity with exchange-traded funds (ETFs) remain the biggest hurdle to growth of the sector in Malaysia.

Despite the benefits and opportunities the strategies offer, many investors still have misconceptions about the product’s trading volume and liquidity as well as risks and return, causing them to stay away from this alternative investment.

However, with a bit more research, investors will find that ETFs actually offer a relatively liquid, less risky and inexpensive way to invest. ETFs also provide investors easy access to a wide range of underlying assets, including alternative asset classes such as commodities and futures.

Speaking on the benefits of investing in ETFs, Chong Lee Choo, (pic) director of ETF and innovation lab at Affin Hwang Asset Management, points out: “ETF is a hybrid investment tool that combines the best features of unit trust funds and stocks.”

“It offers investors an opportunity to have a diversified investment portfolio through a single trade, along with the flexibility to transact intraday when the local bourse is open.

“Because of its more diversified portfolio, the price movement of these ETFs are generally more stable as compared to investing into a single stock, ” she tells StarBizWeek.

While similar to stocks in the sense that ETFs can be bought or sold anytime throughout the regular trading hours on the stock exchange, it is unlike stocks as ETFs have market makers to continuously provide liquidity for the investment product, a concept that many investors are still not familiar with, Chong says.

Hence, she notes, it is a misconception that ETFs are illiquid.

“To help address some of these issues, we have taken an active role to educate members of the public through regular webinars. We believe this platform will be helpful for investors wanting to learn more (about ETFs), ” Chong says.

Wider choices

ETFs are typically viewed as cost-effective investment solutions, as their management fees are comparatively lower than those of actively-managed funds, and the product does not impose any sales charge.

As Chong observes, the local ETF market has evolved steadily over the years since the first product was launched way back in 2005.

“For one, the range of products have evolved. The first few ETFs were focused on the domestic market, namely domestic bonds and domestic equities, ” she points out.

“Today, investors have a wider range of solutions to choose from. These include foreign equity solutions, thematic plays, smart beta strategies, leveraged and inverse strategies, as well as exposure into physical gold, ” she adds.

The increase in the number of ETF providers in the market has also made the landscape more competitive and pushed providers to become more innovative with their ETF launches. This, Chong says, will benefit investors.

“While we have come a long way since the first ETF was launched, we think that there is more room for improvement and opportunities are still aplenty for the market (for both the providers and investors), ” she says.Convenient access

As at end-2020, there were 19 ETFs listed on Bursa Malaysia, with a combined market capitalisation of RM2.16bil. This compared with 15 ETFs with a combined market cap of RM2.14bil as at end-2019.

Despite the “bumpy start” of the ETF industry in Malaysia, Chong says she believes investor interest in ETFs will continue to grow, albeit gradually.

“We believe the increased interest is supported by a wider range of ETFs that are now available on Bursa Malaysia, as well as the better performance of some of the strategies, ” she argues.

“While the temptation of investing into a single stock is high, especially when markets start to rally, ETF strategies can provide investors more stability, given the fact that its portfolio consists of a basket of underlying assets, ” she adds.

ETFs are also appealing as they provide convenient access to foreign markets, such as the US technology sector via Affin Hwang AM’s TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker.

“Glove stocks may be a hot topic on the local bourse but in the US stock market, the tech sector was a key driver, ” Chong says.

“But the cumbersome need of having to set up a foreign brokerage account, to make settlements in the US dollar and the need to stay up late to monitor the US market could be a hindrance for Malaysian investors.

“This led to our proposition to list the TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker – an ETF that provides investors exposure to 10 of the largest US tech companies, namely, Facebook, Amazon, Apple, Netflix, Google, Tesla, Baidu, Alibaba, Nvidia and Twitter, ” she adds.

Such ETF allows investors to gain exposure to US tech stocks using ringgit and trade during Malaysian trading hours.

Of the total RM241mil worth of ETFs traded in Malaysia last year, 85% were made up of Affin Hwang AM’s TradePlus ETFs. This makes the firm the leading player in the field.

Overall, the group’s TradePlus NYSE FANG+ Daily (2x) Leveraged Tracker was the top-performing ETF in the Malaysian market last year. The fund enjoyed a 168% return in ringgit terms in 2020.

Its performance was largely driven by its strategy – which aims to provide 200% the daily returns of the NYSE FANG+ Index.

“The index had performed exceptionally well, given the global lockdown stemming from the pandemic, which led to the WFH (work-from-home) culture and boosted the performance of the underlying stocks, ” Chong says.“Online retailers enjoyed a strong growth in its sales numbers after consumers were kept confined to their homes.

“The ETF’s net asset value (NAV) also jumped when the share price of Netflix Inc rose after it announced a record high number of subscribers globally as consumers at home were starved of entertainment, ” she adds.

Meanwhile, increased awareness surrounding sustainability and green energy lent to the strength of electric car maker Tesla Inc, which was finally included into the S&P 500 Index last year.

“While the NYSE FANG+ Index is primarily focused on the technology sector, the underlying names remain relatively diversified, with exposure to Internet and direct marketing retail; interactive media and services; entertainment; equipment makers; and automobiles, ” Chong says.

Meanwhile, the most actively traded ETF last year was the TradePlus Shariah Gold Tracker – which is Malaysia’s first syariah-compliant, physically backed commodity ETF.“This was largely due to the market uncertainties, which led to investors seeking shelter in safe-haven assets such as gold to diversify and cushion losses, ” Chong says.

The TradePlus Shariah Gold Tracker, which aims to track the performance of gold prices, saw its NAV rise 20.5% in ringgit terms over the year.

On the outlook of the sector, Chong says, most issuers are currently focused on efforts to encourage investors to start trading ETFs in Malaysia to bring the sector to a more optimal size.

“We believe that continuous support from regulators will play a vital role in the market. We are seeing encouraging developments of late and we look forward to more ETFs being launched by the providers to broaden the range of offerings even further, ” she adds.

As for Affin Hwang AM, Chong says the group will continue to look out for opportunities to bring more innovative solutions.

“We believe in providing solutions that would serve as building blocks for investors to build a long-term sustainable investment portfolio. We prefer to look out for opportunities to provide solutions that are unique in the market but at the same time, offer long-term opportunities as opposed to short-term fads, ” she says.

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