Is Investing In ETF Better Than Unit Trust?

Exchange-Traded Fund or in short, ETF, is very much a mirror of unit trust fund. The key difference is that ETF can be traded just like stocks or shares in the stock exchange trading platform. The cost of ETF trading is therefore subject to the same ordinary costs of share trading, such as brokerage fee, stamp duty (may be exempted in some countries) and clearing fee. Essentially, the cost of ETF trading is also lower than investing in unit trusts, which typically attracts up-front sales charges and annual maintenance charges. With the cost of investing in ETF being lower, it is imperative that such instrument is gaining popularity, perhaps at the expense of unit trust.

For instance, in the case of Malaysia unit trust industry, it has been constantly dogged by high sales charges of between 3% to 6%, compared to other countries where the range generally starts from as low as 1%.

ETF was first introduced in the Canadian Toronto Stock Exchange in 1990 but it has since gained huge popularity in US and Europe and now Asia. ETF first started in US in 1993 and there are now over 400 ETFs traded in US and more than a thousand in the world, with total assets surging to about USD800 million! According to Morgan Stanley, average trading volume has also doubled over the last 12 months!

ETFs are essentially open-ended funds that track various index-linked equity, fixed income, commodity and even currencies. Trading of ETFs in Malaysia is relatively new, being only first introduced in 2005. The ETFs available in Malaysia are:

1. ABF Malaysian Bond Index Fund - This ETF invests in a basket of Ringgit denominated Government and quasi-Government bonds
   
2. FTSE Large 30 Index Fund - This ETF invests in a group of stocks comprising of the 30 largest companies listed in Bursa Malaysia.
   
3. Dow Jones Islamic Market Malaysia Titans 25 - This ETF is the first Syariah Exchange Traded Fund launched in Asia.
   

In a nutshell, ETFs enable investors the following benefits:
- gain broad exposure to entire stock markets of different countries with relative ease on trading and at a lower cost to unit trust;
- diversify portfolio without exposing to the risk of one individual stock;
- unlike unit trust, ETFs are highly liquid and transparent;

So, for those investors who are fed up with his or her unit trust funds' constant poor performances due to the failure of so-called "professional" fund managers, whose interests generally lean towards only beating index benchmarks, you may want to consider ETFs since you will now have better control and incur lower cost of investments.

However, do bear in mind there is no certainty in any form of investments. One will still subject to the economic, political, currency, legal or other risks inherent in a specific sector or market that affects the performance of the indexes being tracked by the ETFs.