Conditions ripe for ETF growth — experts

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KUALA LUMPUR: The market conditions in Malaysia are ripe for supporting the growth of exchange-traded funds (ETFs), according to speakers at the ETF & Stock Borrowing & Lending Conference 2014 held last week.

Samsung Asset Management Co Ltd head of business development for ETF investments Peter Lee said the local ETF market offers opportunities for growth as many investors are still holding cash, not knowing what to do with it.

“Overall liquidity and vibrancy of the ETFs here might be less than ideal, but there are positive signs that the whole asset management community, including ETFs, will grow in Malaysia,” Lee told The Edge Financial Daily in an interview.

Lee said “smart” investors would be able to capitalise on the dynamic nature of ETFs.

“ETFs are now available for long-term investors and traders. As the ETF market grows and becomes more developed, there will be something for everyone,” he added.

Lee added that investors could create a portfolio of ETFs and gain exposure to commodities such as gold and soy beans.

Despite the framework for ETFs being set up since 2005, ETFs have yet to become popular as an alternative investment instrument with only six ETFs launched to date.

Commerzbank AG director and deputy head of equity derivatives Antoine Saint de Vaulry said the local distribution channels may not facilitate the growth of ETFs .

“Distribution channels in Malaysia are more focused on rebates. Most financial advisers are not keen on that as they might receive lower rebates,” he said.

“ETFs are not really advertised by financial advisers, who depend on commissions. But where fees are based on assets under management, ETFs perform much better.”

ETFGI LLP managing partner and co-founder Deborah Fuhr said education could be another hindrance to ETF growth in Malaysia. 

“Like so many places, education is a barrier. People need to start viewing ETFs as an [investment] tool and not as an enemy. In areas where financial advisers are paid based on rebates, ETFs are viewed as an enemy because this type of investment doesn’t offer it,” Fuhr said.

A recent global survey by Ernst & Young found that 83% of respondents see more promoters entering the ETF market over the next two years. The survey also found that 70% of respondents from Asia report entering the ETF market through organic growth.

Education and better distribution networks were among the efforts suggested by the global tax leader to improve the ETF industry.

This article first appeared in The Edge Financial Daily, on September 15, 2014.