What are ETFs?

From the SGX's website, "Exchange Traded Funds (ETFs) are open-ended investment funds listed and traded intraday on a stock exchange. They aim to track the performance of an index and provide access to a wide variety of markets and asset classes".

From the SGX's website, I have tabulated the attractive features offered by ETFs:



Exchange-traded funds offer the following advantages:
* Efficiency: Annual management fees for ETFs are generally less than 1%, enabling investors to obtain cost-efficient exposure to a diversified portfolio of securities through a single transaction.
* Transparency: Investors have ready access to the component securities represented in an ETF. Moreover, market prices are published real-time throughout the trading day.
* Flexibility: An investor can buy and sell ETFs anytime during trading hours and may employ the traditional trading techniques including stop orders, limit orders, margin purchases, and short sales.

Investors should note the following risks associated with ETFs:
* Market risk: An ETF represents interest in a portfolio of securities. Hence, the performance of the ETF will be directly affected by the performance of its constituent securities.
* Tracking error: An ETF may not be able to exactly replicate the performance of the underlying index due to management fees, timing differences and other factors.
* Foreign exchange risk: Investors whose base currency is other than the currency denomination of the ETF will be subject to the risk of fluctuations in currency values.

In our local market, we have 3 listed ETFs:
* FTSE Bursa Malaysia 30 ETF (FBM30etf) [Code: 0820EA],
* MyETF Dow Jones Islamic Market Malaysia Titans 25 (MyETF-DJIM25) [Code: 0821EA], and
* ABF Malaysia Bond Index Funds (ABFMY1) [Code: 0800EA]

All the above three ETFs have very thin trading volume, which is a deterrence to investors. The same problem can also seen in the case of ETFs listed on the Singapore Stock Exchange.