Monday, 2 May 2016

Malaysia Unit Trust vs ETF, which one is Better Performing?

Recently I came across a statistic that says only 4% of Mutual Funds in America were able to outperform the Market Index. That makes selecting a fund to invest in the United States is akin to searching for a needle in a haystack. The first question which appear on my mind was how many of our local unit trust funds were able to outperform the Kuala Lumpur Stock Exchange (KLSE) Index? How many funds in Malaysia that have outperformed the KLSE Index? This brings me to this blog post which I am about to share with you.

Before we get started, I'm pretty sure most of you would be wondering why I'm comparing between Unit Trust (UT) fund vs Exchange Traded Fund (ETF)? Why am I not making a direct comparison with the KLSE Index instead?

Well the reason is like this. ETFs are generally design to mirror a specific index buy buying into stocks that make up the index. In this case, I have selected an ETF that closely reflect the performance of KLSE Index because of two main reasons:
  1. The ETF mirrors the KLSE Index, thereby providing a close to fair representation of the index.
  2. An ETF is available to investors. In other words at the end of this post, if you find that investing into the Index is more attractive, you can do so buy investing into the ETF.
Now with that aside, let's begin with the comparison of Unit Trust vs ETF that mirrors the KLSE Index

Introduction
The purpose of this blog post is to find out the following outcome:

  1. How many unit trust funds under the category of "Equity - Malaysia Large-cap" were able to outperform the ETF that mirrors KLSE Index 
  2. How many unit trust funds under the category of "Equity - Malaysia Large-cap (Syariah)" were able to outperform the ETF that mirrors KLSE EMAS Shariah Index 
  3. Additional comparison of ETF versus "Equity - Malaysia Small-cap" and "Equity - Malaysia Small-cap (Syariah)" funds

ETFs background

  • ETF that mirrors KLSE Index - "FTSE Bursa Malaysia KLCI ETF" 

ETF Information provided by Morningstar

  •  ETF that mirrors KLSE EMAS Shariah Index - "MYETF DJ Islamic Malaysia Titans 25"

ETF Information provided by Morningstar
Unit Trust (Equity - Malaysia Large-cap) vs FTSE Bursa Malaysia KLCI ETF  
There are currently 46 unit trust funds parked under Category Equity - Malaysia Large-cap. Comparison between UT from this Category and ETF would be in terms of performance for:

  • 3 Years Annualised Returns
  • 5 Years Annualised Returns 
Do take note that comparison for 10 Years Annualised Returns could not be done because the ETF does not have a 10 year track record yet. 

3 Years Annualised Returns Comparison 
Basic Information
  • Comparison based on UT Funds and ETF performance as of 29 April 2016
  • Total UT funds : 42 funds with 3 Years or more track record
  • FTSE Bursa Malaysia KLCI ETF (3 Years Annualised Return) : +2.11%
Results
34 out of 42 funds outperformed the ETF (80.95%)
3 Years Annualised Returns of Unit Trust vs ETF
Click Image to Enlarge
Total Returns if an Investor were to invest RM10,000 over 3 Years
For the purpose of calculation, I have selected the Ranked 1 UT fund for this Category which is Eastspring Investments Growth Fund. In addition, the deduction of 2% Sales Charge for investment into UT via eUnittrust have also been factored in.

Results of the calculations are as shown in the table below:


Initial Investment Charges
Initial Investment Amount (RM)
after deducting charges
3 Years Annualised Returns
(%)
Total Returns after 3 Years
(RM)
FTSE Bursa Malaysia KLCI ETF
None
RM10,000.00
2.11%
RM10,646.45
Eastspring Investments Growth Fund
2% Sales Charge via eUnittrust
RM9,803.92
9.20%
RM12,766.38

Another point to add would be that any UT fund under this Category with a 3 Years Annualised Return of 2.8% and above would outperformed this ETF.

5 Years Annualised Returns Comparison 

Basic Information
  • Comparison based on UT Funds and ETF performance as of 29 April 2016
  • Total UT funds : 38 funds with 5 Years or more track record
  • FTSE Bursa Malaysia KLCI ETF (5 Years Annualised Return) : +3.55%
Results
23 out of 38 funds outperformed the ETF (60.52%)
5 Years Annualised Returns of Unit Trust vs ETF
Click Image to Enlarge
Total Returns if an Investor were to invest RM10,000 over 5 Years
For the purpose of calculation, I have selected the Ranked 1 UT fund for this Category which is Affin Hwang Select Opportunity Fund. In addition, the deduction of 2% Sales Charge for UT investment via eUnittrust have also been factored in.

Results of the calculations are as shown in the table below:


Initial Investment Charges
Initial Investment Amount (RM)
after deducting charges
5 Years Annualised Returns
(%)
Total Returns after 5 Years
(RM)
FTSE Bursa Malaysia KLCI ETF
None
RM10,000.00
2.11%
RM11,100.47
Affin Hwang Select Opportunity Fund
2% Sales Charge via eUnittrust
RM9,803.92
9.72%
RM15,589.38

Another point to add would be that any UT fund under this Category with a 5 Years Annualised Return of 2.6% and above woud outperformed this ETF.

Unit Trust (Equity - Malaysia Large-cap (Syariah)) vs MYETF DJ Islamic Malaysia Titans 25    
There are currently 33 unit trust funds parked under Category Equity - Malaysia Large-cap (Syariah). Comparison between UT from this Category and ETF would be in terms of performance:

  • 3 Years Annualised Returns
  • 5 Years Annualised Returns 
Do take note that comparison for 10 Years Annualised Returns could not be done because the ETF does not have a 10 year track record yet. 

3 Years Annualised Returns Comparison 
Basic Information
  • Comparison based on UT Funds and ETF performance as of 29 April 2016
  • Total UT funds : 32 funds with 3 Years or more track record
  • MYETF DJ Islamic Malaysia Titans 25 (3 Years Annualised Return) : +0.93%
Results
30 out of 32 funds outperformed the ETF (93.75%)
3 Years Annualised Returns of Syariah Unit Trust vs ETF
Click Image to Enlarge
Total Returns if an Investor were to invest RM10,000 over 3 Years
For the purpose of calculation, I have selected the Ranked 1 UT fund for this Category which is Eastspring Investments Dana al-Ilham Fund. In addition, the deduction of 2% Sales Charge for investment into UT via eUnittrust have also been factored in.

Results of the calculations are as shown in the table below:


Initial Investment Charges
Initial Investment Amount (RM)
after deducting charges
3 Years Annualised Returns
(%)
Total Returns after 3 Years
(RM)
MYETF DJ Islamic Malaysia Titans 25
None
RM10,000.00
0.93%
RM10,281.60
Eastspring Investments Dana al-Ilham Fund
2% Sales Charge via eUnittrust
RM9,803.92
13.17%
RM14,209.99

Another point to add would be that any UT fund under this Category with a 3 Years Annualised Return of 1.6% and above would outperformed this ETF

5 Years Annualised Returns Comparison
Basic Information
  • Comparison based on UT Funds and ETF performance as of 29 April 2016
  • Total UT funds : 30 funds with 5 Years or more track record
  • MYETF DJ Islamic Malaysia Titans 25 (5 Years Annualised Return) : +5.75%
Results
10 out of 30 funds outperformed the ETF (33.33%)
5 Years Annualised Returns of Syariah Unit Trust vs ETF
Click Image to Enlarge
Total Returns if an Investor were to invest RM10,000 over 5 Years
For the purpose of calculation, I have selected the Ranked 1 UT fund for this Category which is Eastspring Investments Dana al-Ilham Fund. In addition, the deduction of 2% Sales Charge for investment into UT via eUnittrust have also been factored in.

Results of the calculations are as shown in the table below:


Initial Investment Charges
Initial Investment Amount (RM)
after deducting charges
5 Years Annualised Returns
(%)
Total Returns after 5 Years
(RM)
MYETF DJ Islamic Malaysia Titans 25
None
RM10,000.00
5.75%
RM13,225.19
Eastspring Investments Dana al-Ilham Fund
2% Sales Charge via eUnittrust
RM9,803.92
11.94%
RM17,231.63

Another point to add would be that any UT fund under this Category with a 5 Years Annualised Return of 6.2% and above would outperformed this ETF

Additional Comparisons
FTSE Bursa Malaysia KLCI ETF vs Unit Trust (Equity - Malaysia Small-cap)
  • 3 Years Annualised Return - 31 out of 35 funds outperformed the ETF (88.57%)
  • 5 Years Annualised Return - 25 out of 34 funds outperformed the ETF (73.53%)
MYETF DJ Islamic Malaysia Titans 25 vs Unit Trust (Equity Malaysia Small-cap (Syariah))
  • 3 Years Annualised Return - 23 out of 24 funds outperformed the ETF (95.83%)
  • 5 Years Annualised Return - 12 out of 20 funds outperformed the ETF (60.00%)

Summary
Over in the United States, the general advice for investor is to pick ETF over Mutual Funds as tghe choice of passive investment. Apart from the under performing Mutual Funds as stated in the beginning of this post, charges and fees of Mutual Funds are rather high. These fees would ultimately eat into the total return of mutual funds resulting in further under performance. 

However the strategy of picking ETF of Mutual Fund is not a practical strategy for Malaysia market. If a Malaysian investor were to invest into ETF over mutual funds, he or she would probably make a whole lot lesser as proven in the statistics above.

It is crystal clear that a high percentage of Malaysia Unit Trust funds (managed by local fund companies) are able to outperform the ETFs (mirroring the Index) even after charges and fees are deducted. Now that all the facts are laid out, the debate of which one is better can be laid to rest.

Cheers and Happy Investing!

P.S : 
  • If you have any questions, feel free to drop me an email at shanesee03@gmail.com
  • Don't forget to LIKE Invest Made Easy Fcebook by clicking HERE
  • I've recently launched an online learning platform called Unit Trust Made Easy to help Malaysians to kick start their own unit trust investment. For further details, check it out HERE





2 comments:

  1. hi shane, how about the dividends? i assume here that for UT, dividend is reinvested. While for ETF, dividend is outside of the price.

    ReplyDelete
    Replies
    1. ETF dividends are reinvested and have been factored into the returns.

      Delete