Trading Market Trends with Intermarket Analysis and ETFs 12 March 2017 Overview
1. Factors to consider when choosing ETFs
2. ETF liquidity – Traded Liquidity vs Implied Liquidity
3. Different types of ETFs
4. Putting it all together – how to start using ETFs in your portfolio
5. Business cycle and asset class rotation
6. Using market carpets to spot market trends
7. Market trends involving various asset classes Factors to consider when evaluating ETFs Key factors for consideration
1. Underlying index tracked by the ETF
2. Replication method
3. Management fees / Expense ratio
4. Tracking error / tracking difference 1. Underlying index tracked by the ETF
The MOST IMPORTANT factor driving the performance of the ETF!
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Underlying index tracked by the ETF
The underlying index tracked by the ETF provides you a good idea of what are you investing in!
Source: CIMB Principal Asset Management, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Underlying index tracked by the ETF
The underlying index tracked by the ETF provides you a good idea of what are you investing in!
CIMB FTSE China 50 ETF
Source: CIMB Principal Asset Management, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Replication Method (Physical replication)
The replication method gives you an idea how the ETF tracks the underlying index.
Prospectus of FTSE Bursa Malaysia KLCI ETF
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Replication Method (Synthetic replication)
The replication method gives you an idea how the ETF tracks the underlying index.
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Management fees / Expense Ratio
Management fees / Expense ratio indicates how much are you paying for the ETF.
Source: CIMB Principal Asset Management, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Tracking error / Tracking difference
Tracking error or tracking difference indicates how much the performance of the ETF is deviating from the index performance.
Source: CIMB Principal Asset Management, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. ETF liquidity Traded liquidity vs Implied liquidity Traded liquidity vs Implied liquidity
The true liquidity of an ETF is determined by how liquid the underlying index components are!
It is useful for traded liquidity (i.e. traded volumes on the stock exchange) to be high as it makes it easier for smaller retail investors to enter / exit the ETF
BUT MORE importantly, the liquidity of the underlying index components needs to be liquid – as this represents the TRUE POTENTIAL of the ETF’s liquidity. Traded liquidity vs Implied liquidity
ETF
Implied Liquidity Implied on the Liquidity asset class on the asset class Implied Liquidity Traded on the liquidity asset class Traded liquidity
Traded Traded liquidity Traded liquidity liquidity Current traded volume of FTSE KLCI ETF
An ETF with higher traded volumes makes it easier for investors to enter/exit. Bid / ask spread of FTSE KLCI ETF
An ETF with smaller bid-ask spreads make it easier for investors to enter/exit. The TRUE implied liquidity of FTSE KLCI ETF
Creation/Redemption Basket 15-day average % of average daily size for 836,000 units daily traded volume traded volume Ticker 1 British American Tobacco 400 241,000 0.2% ROTH MK 2 PPB Group Berhad 1,700 628,000 0.3% PEP MK 3 RHB Bank Berhad 2,500 3,675,000 0.1% RHBBANK MK 4 AMMB Holdings 5,200 6,474,000 0.1% AMM MK 5 CIMB Group Holdings 16,800 14,483,000 0.1% CIMB MK Based on the 6 Hong Leong Bank 1,900 1,068,000 0.2% HLBK MK 7 Hong Leong Financial Group 500 226,000 0.2% HLFG MK creation / 8 Malayan Banking Bhd 16,600 13,671,000 0.1% MAY MK 9 Public Bank Bhd 9,200 4,796,000 0.2% PBK MK redemption basket 10 Petronas Chemicals Group 8,500 8,049,000 0.1% PCHEM MK 11 Petronas Gas Bhd 2,300 1,380,000 0.2% PTG MK of FTSE KLCI ETF, 12 Digi.com Bhd 11,100 5,809,000 0.2% DIGI MK 13 IOI Corp 9,900 6,441,000 0.2% IOI MK market makers are 14 Kuala Lumpur Kepong 1,600 1,360,000 0.1% KLK MK 15 KLCC Prop & KLCC Reits 800 1,265,000 0.1% KLCCSS MK able to trade large 16 Astro Malaysia Holdings 5,400 1,997,000 0.3% ASTRO MK 17 Axiata Group 13,500 9,702,000 0.1% AXIATA MK volumes of this ETF 18 Genting Bhd 6,600 3,714,000 0.2% GENT MK 19 Genting Malaysia Bhd 8,400 8,424,000 0.1% GENM MK without much 20 Hap Seng Conso 1,000 283,000 0.4% HAP MK 21 IHH Healthcare Bhd 8,300 6,358,000 0.1% IHH MK market impact! 22 Maxis Bhd 7,800 2,835,000 0.3% MAXIS MK 23 MISC Bhd 4,400 2,927,000 0.2% MISC MK 24 Petronas Dagangan Bhd 800 478,000 0.2% PETD MK 25 IJM 9,400 3,678,000 0.3% IJM MK 26 Sime Darby Berhad 10,200 8,957,000 0.1% SIME MK 27 Telekom Malaysia 6,600 5,228,000 0.1% T MK 28 Tenaga Nasional Bhd 10,500 8,045,000 0.1% TNB MK 29 Westports Holdings 2,400 3,487,000 0.1% WPRTS MK 30 YTL Corp Bhd 13,300 4,166,000 0.3% YTL MK
Source: Aminvest, Bloomberg, as of 9 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Different types of ETFs Equity ETFs, Bond ETFs, Smart Beta ETFs, Alternative ETFs, Leveraged & Inverse ETFs, Actively managed ETFs 1. Equity ETFs (Broad market ETFs)
Example: FTSE Bursa Malaysia KLCI ETF
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Equity ETFs (Broad market ETFs)
Example: SPDR S&P 500 ETF (Ticker: SPY)
Source: SPDR.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Equity ETFs (Broad market ETFs)
Example: SPDR S&P 500 ETF (Ticker: SPY)
Source: Bloomberg, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Equity ETFs (Industry Sector ETFs)
Example: Energy Select Sector SPDR (Ticker: XLE)
Source: SPDR.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. Equity ETFs (Industry Sector ETFs)
Example: Energy Select Sector SPDR (Ticker: XLE)
Source: Bloomberg, as of 8 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Bond ETFs
Example: ABF Malaysia Bond Index Fund
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Bond ETFs
Example: ABF Malaysia Bond Index Fund
Source: Aminvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Bond ETFs
Example: iShares 7-10 Year Treasury Bond ETF
Source: iShares BlackRock, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Bond ETFs
Example: iShares 7-10 Year Treasury Bond ETF
Source: iShares BlackRock, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Bond ETFs
Example: iShares Barclays USD Asia High Yield Bond Index ETF iShares Barclays USD Asia Credit Bond Index ETF
Performance (MYR) Dec 2011 – Dec 2016 1 230.00 Calendar Year Performance (MYR) 214.6 210.00 iShares Barclays USD Asia HY Bond Index ETF
190.00 188.4 2012 2013 2014 2015 2016 17.5% 9.2% 12.7% 27.8% 16.1% 170.00
150.00 iShares JPM USD Asia Credit Bond Index 2012 2013 2014 2015 2016 130.00 10.5% 4.5% 16.5% 25.0% 11.1% 110.00
90.00 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 iShares JPMorgan USD Asia Credit Bond Index ETF iShares Barclays USD Asia High Yield Bond Index ETf
Source: Bloomberg, as of 31 December 2016. 1 Performance figures are based on the NAV prices of the ETFs and are presented in MYR terms assuming the reinvestment of dividends (if any). Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Past performance is not indicative of future performance. 2. Smart Beta ETFs
What are ‘Smart Beta’ ETFs?
A type of ETF that tracks an index that is constructed using different rules instead of the typical market cap-weighted strategy.
Example of ‘Smart Beta’ ETFs: High dividend oriented ETFs Low volatility ETFs Growth factor ETFs Value factor ETFs High Quality Companies ETFs 2. Smart Beta ETFs
Example: MyETF MSCI Malaysia Islamic Dividend ETF (Ticker: MEMMID)
Source: MyETF.com.my, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Smart Beta ETFs
Example: MyETF MSCI Malaysia Islamic Dividend ETF (Ticker: MEMMID)
Source: MyETF.com.my, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. Smart Beta ETFs
Example: MyETF MSCI SEA Islamic Dividend ETF Offers exposure to the MSCI AC ASEAN IMI Islamic High Dividend Yield 10/40 index – which represents the dividend yield opportunity within Southeast Asia’s Shariah equity market. 1.9% Top 10 holdings 4.2% 1 Singapore Telecom 4.8% 2 Telekomunikasi Indonesia 6.1% Telecom 32.8% Consumer Discretionary 3 Digi.com Berhad 6.4% Industrials Financials 4 Singapore Press Holdings Healthcare 7.0% 5 Comfortdelgro Corp. Materials Utilities 6 Maxis Berhad Consumer Staples 7 MISC Berhad 15.9% Info Tech 19.8% 8 Petronas Gas 9 Singapore Post Ltd 10 Westport Holdings
Source: MyETF.com.my, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Alternative ETFs (Commodity ETFs)
Example: SPDR Gold Shares (Ticker: GLD)
Source: www.spdrgoldshares.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Alternative ETFs (Commodity ETFs)
Example: SPDR Gold Shares (Ticker: GLD)
Source: Bloomberg, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Alternative ETFs (Commodity ETFs)
Example: United States Oil Fund (Ticker: USO)
Source: www.uscfinvestments.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Alternative ETFs (Commodity ETFs)
Example: United States Oil Fund (Ticker: USO)
Source: Bloomberg, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. Alternative ETFs (Commodity ETFs)
Example: United States Oil Fund (Ticker: USO)
Beware of the futures rolling effect for commodity ETFs that invest in commodity futures!
Source: Bloomberg, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Leveraged & Inverse ETFs
What are ‘Leveraged’ and ‘Inverse’ ETFs?
‘Leveraged’ ETFs are funds that uses financial derivatives to amplify the daily returns of an underlying index.
‘Inverse’ ETFs are funds that uses financial derivatives to provide the inverse of the daily returns of an underlying index. 4. Leveraged ETFs
Example: ProShares Ultra S&P 500 (Ticker: SSO)
Source: www.proshares.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. The problem with leveraged ETFs
Day 0 Day 1 Day 2
Equity Index Value Equity Index Value Equity Index Value = 100 = 110 (+10%) = 100 ( -9.1% )
Leveraged ETF Value Leveraged ETF Value Leveraged ETF Value = 100 = 100 + ( +10% x 2) = 120 + ( -9.1% x 2) = 120 = 98.2
Leveraged ETFs are not meant to be held for more than a single day! 4. Leveraged ETFs
Example: ProShares Ultra S&P 500 (Ticker: SSO)
Source: Bloomberg, as of 8 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Inverse ETFs
Example: ProShares Short S&P 500 (Ticker: SH)
Source: www.proshares.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Inverse ETFs
Example: ProShares Short S&P 500 (Ticker: SH)
Source: Bloomberg, as of 8 Mach 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Inverse Bond ETFs
Example: ProShares Short 7 – 10 Treasury ETF (Ticker: TBX)
Source: www.proshares.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. Inverse Bond ETFs
Example: ProShares Short 7 – 10 Treasury ETF (Ticker: TBX)
Source: Bloomberg, as of 8 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 5. Volatility-based ETFs
Example: PowerShares S&P 500 Low Volatility Portfolio (Ticker: SPLV)
Source: Invesco PowerShares, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 5. Volatility-based ETFs
Example: PowerShares S&P 500 Low Volatility Portfolio (Ticker: SPLV)
Source: Bloomberg, as of 8 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 6. Actively managed ETFs
Example: SPDR DoubleLine Total Return Tactical ETF (Ticker: TOTL)
Source: www.spdrs.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 6. Actively managed ETFs
Example: SPDR DoubleLine Total Return Tactical ETF (Ticker: TOTL)
Source: Bloomberg, as of 8 March 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Putting it all together How you can start using ETFs in your portfolios ETFs listed on Bursa Malaysia
There are currently 8 listed ETFs on Bursa Malaysia.
No Name of ETF Fund Underlying Manager investment 1 FTSE Bursa Malaysia KLCI ETF AmFunds Malaysia equities 2 CIMB FTSE ASEAN 40 Malaysia CIMB PAM Regional equities 3 CIMB FTSE China 50 CIMB PAM China equities in HK 4 MyETF DJIM25 i-VCAP Shariah Malaysia equities 5 MyETF MSCI Malaysia Islamic Dividend i-VCAP Shariah Malaysia equities 6 MyETF MSCI South East Asia Islamic i-VCAP Shariah regional Dividend equities 7 MyETF Thomson Reuters Asia Pacific ex i-VCAP Shariah regional Japan Islamic Agribusiness equities 8 ABF Malaysia Bond Index Fund AmFunds Malaysia bonds
Source: Bursa Malaysia, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 1. FTSE Bursa Malaysia KLCI ETF
Offers exposure to the top 30 Malaysian companies Semi-annual dividend distributions (KLCI dividend yield ~ 3.1%) P/E ratio ~17.0x (Equity yield ~5.9%) Top 10 holdings 1.5% 3.9% 5.2% 1 Public Bank Banks Utilities 2 Malayan Banking 4.3% 24.2% Industrial Goods & Services 4.4% Telecom 3 Tenaga Nasional Food & Beverage 4.5% 4 Sime Darby Bhd Travel & Leisure 5.3% Construction & Materials 5 CIMB Group Holdings Real Estate 11.8% 6 Petronas Chemicals Group 6.6% Health Care Oil & Gas 7 Genting Chemicals 7.7% 10.3% Personal & Household 8 Axiata Group 10.3% Others 9 Digi.com 10 IHH Healthcare
Source: FTSE, AmInvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 2. CIMB FTSE ASEAN 40 Malaysia
Offers exposure to the FTSE ASEAN 40 (top companies within the ASEAN countries) Annual dividend distributions
Top 10 holdings 6.1% 1 DBS Group Holdings 2 OCBC Bank
18.9% 30.5% 3 Singapore Telecom Singapore Thailand 4 United Overseas Bank Malaysia 5 PTT Indonesia Philippines 6 Telekomunikasi Indonesia
21.9% 7 Public Bank
22.4% 8 Bank Central Asia 9 Siam Cement 10 Astra International
Source: CIMB PAM Malaysia, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 3. CIMB FTSE China 50
Offers exposure to the FTSE China 50 index – which represents the top 50 largest and most liquid Chinese stocks traded on HK Exchange
Top 10 holdings
3.6% 1.2% 1.0% 0.8% 1 Tencent Holdings 2 China Construction Bank 6.1% Financials 3 China Mobile Energy 9.5% Telecom 4 Industrial and Commercial Technology Bank of China Industrials 5 Bank of China 11.6% 53.1% Consumer Goods Utilities 6 Ping An Insurance HealthCare 7 China Petroleum & Chemical Materials 13.1% 8 China Life Insurance 9 CNOOC 10 PetroChina
Source: CIMB PAM Malaysia, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 4. MyETF Dow Jones Islamic Market Malaysia Titans 25 (DJIM 25) Offers exposure to the DJIM25 index – which represents Malaysia- based companies that comply with the methodology established by Dow Jones for screening stocks that comply with Shariah principles.
0.9% 0.7% 0.5% Top 10 holdings 3.3% 1 Tenaga National Berhad 5.8% 2 Sime Darby Berhad Trading/Services 3 IHH Healthcare Berhad 12.5% Industrial Products Plantations 4 Axiata Group Berhad Infrastructure Construction 5 Petronas Chemicals Group
59.6% Consumer 16.9% 6 IOI Corp Technology Others 7 Digi.com 8 Kuala Lumpur Kepong Berhad 9 Telekom Malaysia 10 Petronas Gas
Source: MyETF.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 5. MyETF MSCI Malaysia Islamic Dividend
Offers exposure to the MSCI Malaysia IMI Islamic High Dividend Yield 10/40 index – which represents the dividend yield opportunity within Malaysia’s Shariah equity market.
2.5% 1.6% 0.5% 2.9% Top 10 holdings 1 Maxis Berhad 7.5% Trading/Services 2 Axiata Group Berhad Industrial Pdts 8.8% 41.7% Infrastructure 3 Digi.com Berhad Properties 4 MISC Berhad Consumer 9.0% Finance 5 Top Glove Corp. Berhad IPC 6 Petronas Gas Technology Others 7 Bermaz Auto Berhad
25.5% 8 UOA Development Berhad 9 Westports Holdings 10 Hartalega Holdings
Source: MyETF.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 6. MyETF MSCI SEA Islamic Dividend
Offers exposure to the MSCI AC ASEAN IMI Islamic High Dividend Yield 10/40 index – which represents the dividend yield opportunity within Southeast Asia’s Shariah equity market.
1.9% Top 10 holdings 4.2% 1 Singapore Telecom 4.8% 2 Telekomunikasi Indonesia 6.1% Telecom 32.8% Consumer Discretionary 3 Digi.com Berhad 6.4% Industrials Financials 4 Singapore Press Holdings Healthcare 7.0% 5 Comfortdelgro Corp. Materials Utilities 6 Maxis Berhad Consumer Staples 7 MISC Berhad 15.9% Info Tech 19.8% 8 Petronas Gas 9 Singapore Post Ltd 10 Westport Holdings
Source: MyETF.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 7. MyETF Thomson Reuters Asia Pacific ex Japan Islamic Agribusiness Offers exposure to the Thomson Reuters Asia Pac ex Japan Islamic Agribusiness index – which is made up of 30 largest stocks listed in the Asia Pac exchanges that are in agriculture-based industries 3.8% 6.2%
Food Processing Top 10 holdings Fishing & Farming 47.3% 1 The A2 Milk Company Agricultural 42.7% Chemicals 2 Bega Cheese Ltd Otheres 3 Charoen Pokphand Indonesia
1.5% 4 China Shengmu Organic Milk 2.7% 1.2% 3.5% Malaysia 5 Costa Group Holdings Australia 6 Felda Global Ventures Indonesia 10.4% 27.3% New Zealand 7 Fonterra Co-Operative Group Hong Kong 10.5% 8 Freedom Goods Group Taiwan South Korea 9 Genting Plantations Thailand 17.0% 25.9% Philippines 10 IJM Plantations
Source: MyETF.com, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. 8. ABF Malaysia Bond Index Fund
The only bond ETF listed on Bursa Malaysia
Offers individual investors to get immediate exposure to a portfolio of mainly Malaysian government bonds.
(as of 28 Feb 2017) Portfolio Yield Modified Duration Actual Portfolio 3.92% 5.60 years Benchmark 3.95% 5.58 years
Top 5 holdings 1 Malaysia Govt Bond July 2024 2 Malaysia Govt Bond Nov 2021 3 Malaysia Govt Bond Oct 2020 4 Malaysia Gov Bond Mar 2019 5 Malaysia Govt Bond Sep 2022
Source: AmInvest, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Achieve immediate diversification using ETFs
Diversified Core & Existing portfolio ETFs Balanced Portfolio
KLCI Stock A Malaysia ETF KLCI Stock A ETF
++ == Stock B Malaysia Malaysia ABF ABF Stock B Stock C Malaysia Malaysia Bond Bond Stock C ETF ETF
ETFs can be used in combination with stocks to build a diversified core and low cost portfolio! Different risk profiles of investors
Conservative Balanced Aggressive / Growth Portfolio Portfolio Portfolio
Bonds, 50% Bonds, 30% Equities, 30%
Equities, 50%
Bonds, Equities, 70% 70%
Depending on your risk profile, you can use a combination of ETFs and stocks to build a suitable portfolio Building ETFs into your portfolio: Core-Satellite approach
China Satellites Stock C Oil Sector equities Stocks (China 50 (ETF) ETF)
KLCI Malaysia ETF Stock B Stock D CORE Stock E ABF Malaysia Malaysia Bond Stock A ETF
Agribusiness U.S. stocks equities (ETF) Stock E (ETF) Satellites How adding a bond ETF can stabilise your portfolio
180.00 Effect of adding bonds to stabilize your portfolio Total Return from Jul 2007 to Feb 2017 (MYR)
160.00 151.0 149.6 140.00 144.7
120.00
100.00 Portfolio Total Volatility Return (% p.a.) 100%FTSE KLCI ETF 51.0% 12.9% 80.00 70% KLCIETF + 30% ABF Malaysia Bond ETF 49.6% 9.3% 30%KLCI ETF + 70% ABF Malaysia Bond ETF 44.7% 5.1% 60.00 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Jul 13 Jul 14 Jul 15 Jul 16 100% FTSE Bursa Malaysia KLCI ETF 70% FTSE KLCI ETF + 30% ABF Malaysia Bond Index ETF 30% FTSE KLCI ETF + 70% ABF Malaysia Bond Index ETF
Source: Bloomberg, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Performance are presented in MYR terms, assuming reinvestment of dividends if any. Past performance is not indicative of future performance. A simpler way of investing – using ETFs to get exposure to other equity markets Malaysia equities have gone nowhere in the last 3 years. But Malaysian investors are not limited to Malaysia equities!
160.00 Performance (in MYR terms) Dec 2013 – Dec 2016
150.00
140.00 134.0 130.00
120.00 117.5
110.00 101.8 100.00
90.00
80.00 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 FTSE KLCI ETF CIMB FTSE China 50 ETF CIMB FTSE ASEAN 40
Source: Bloomberg, as of 31 December 2016. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Performance are presented in MYR terms, assuming reinvestment of dividends if any. Past performance is not indicative of future performance. Business cycle and asset class rotation The typical business cycle
Source: Fidelity Investments, as of 28 February 2017. Sector rotation and investing across a cycle
Source: MyETF.com.my, as of 28 February 2017. Using market carpets to spot market trends Technical Analysis on ETFs
www.stockcharts.com
Source: Bloomberg, as of 31 December 2016. 1 Performance figures are based on the NAV prices of the ETFs and are presented in MYR terms assuming the reinvestment of dividends (if any). Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Past performance is not indicative of future performance. Market trends involving various asset classes Market trend of USD vs Commodities
Performance of USD vs Global Commodities 250 130
120 200
110
150 100
90 100
80
50 70
0 60 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 Global Commodities US Dollar
Source: Bloomberg, as of 28 February 2017. The US Dollar is represented by the DXY index. Global Commodities is represented by the Bloomberg Global Commodities Index. Performance are presented in USD terms. Past performance is not indicative of future performance. Market trend of Global Equities vs Commodities
3000 Performance of Global Equities vs Global Commodities 250
2500 200
2000
150
1500
100
1000
50 500
0 0 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 Global Equities Global Commodities
Source: Bloomberg, as of 28 February 2017. Global Equities is represented by the MSCI World Index. Global Commodities is represented by the Bloomberg Global Commodities Index. Performance are presented in USD terms. Past performance is not indicative of future performance. Market trend of Stocks vs Commodities
Performance of US stocks vs US Dollar 3500 130
120 3000 110
2500 100
90 2000 80
1500 70
60 1000 50
500 40 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 S&P 500 (US stocks) US Dollar
Source: Bloomberg, as of 28 February 2017. Global Equities is represented by the MSCI World Index. Global Commodities is represented by the Bloomberg Global Commodities Index. Performance are presented in USD terms. Past performance is not indicative of future performance. Market trend of Bonds vs Commodities
550 Performance of Global Bonds vs Global Commodities 250
500 230
210 450
190 400
170 350 150 300 130
250 110
200 90
150 70
100 50 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 Global Bonds Global Commodities
Source: Bloomberg, as of 28 February 2017. Global Bonds is represented by the Barclays Global Aggregate Index. Global Commodities is represented by the Bloomberg Global Commodities Index. Performance are presented in USD terms. Past performance is not indicative of future performance. Market trend of Global Equities vs Global Bonds
3000 Performance of Global Equities vs Global Bonds 600
2500 500
2000 400
1500 300
1000 200
500 100
0 0 Jul 05 Jul 10 Jul 15 Jul Oct 01 Oct 04 Apr 06 Oct 09 Apr 11 Oct 14 Apr 16 Oct Jan 03 Jan 03 Jun 08 Jan 08 Jun 13 Jan 13 Jun Mar 02 Mar 05 Feb 07 Mar 10 Feb 12 Mar 15 Feb Dec 00 Dec 02 Aug 03 Nov 04 Sep 05 Dec 07 Aug 08 Nov 09 Sep 10 Dec 12 Aug 13 Nov 14 Sep 15 Dec May 01 May 06 May 11 May 16 May Global Equities Global Bonds
Source: Bloomberg, as of 28 February 2017. Global Equities is represented by the MSCI World Index. Global Bonds is represented by the Barclays Global Aggregate Index. Performance are presented in USD terms. Past performance is not indicative of future performance. www.bursamarketplace.com
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“ Everyone’s Market-in-the-Pocket ”
76 Appendix Introduction to ETFs (what, how and why) What is an ETF?
ETF stands for Exchange Traded Funds
ETFs are funds that are bought / sold on the stock exchange Buy / sell on the stock exchange (only pay brokerage fees to buy and sell) Transacted via a broker Same settlement process as stocks traded on the exchange
As a fund, ETFs can be made up of a portfolio of Stocks, Bonds, Commodities Interaction between ETFs, stock exchange and investors
Investor Exchange Traded Funds
Portfolio of stocks Investor Stock Exchange Portfolio of bonds
Portfolio of Investor commodity futures Key features of ETFs
INDEX TRACKER LOW COST TRANSPARENT & PREDICTABLE ETFs are passively ETFs have managed to track significantly ETFs are fully an index lower fees and transparent; Full (e.g. an equity expenses than portfolio holdings index or bond most investment are available daily index) products How does an ETF track an index?
ETFs seeks to ‘mirror’ the index they are tracking.
ETF Index
A unit of the ETF How does an ETF track an index?
4 methods of tracking an index:
Full Replication Investing all or substantially all of its assets in the constituents of the index, broadly in proportion to the respective weightings of the constituents in the index. Invests in Sampling Approach By dividing an index into manageable key risk elements so as to physical replicate the performance of the underlying index . securities
Optimisation Approach By investing in a portfolio that has a high correlation to the index and index constituents to minimise tracking error.
Synthetic Replication Through the use of financial derivatives or embedded derivatives to derive the index performance. Examples of well known equity indices
FTSE Bursa Malaysia KLCI Index (Malaysia equities) The FTSE Bursa Malaysia KLCI Index represents the top 30 companies by market capitalization on Bursa Malaysia’s Main Board.
S&P 500 (U.S. equities) A market capitalization weighted index of 500 stocks listed in the U.S. This index is designed to measure performance of the broad U.S. domestic economy through changes in the aggregate value of 500 stocks representing major industries.
MSCI AC Asia ex Japan (Asian equities) MSCI AC Asia ex Japan Index captures the performance of large and mid-cap companies across 2 Developed Market countries and 8 Emerging Market countries in Asia. With 626 constituents, the index covers approximately 85% of the free-float adjusted market capitalization in each country. MSCI World (Global equities) The MSCI World captures large and mid cap representation across 23 developed markets countries. With 1,645 constituents, the index covers approximately 85% of the free-float adjusted market capitalization in each country. ETFs when compared to other investments
ETFs allow investors to achieve instant diversification with small amount of capital at a low cost! Benefits of ETFs Why ETFs are a power investment tool ETFs dominates trading on the US stock market
Did you know? In 2016, 7 out of the top 10 traded securities on US exchanges are ETFs!
Source: Bloomberg, as of 13 Jan 2017. Growth and evolution of ETFs
Alternative ETFs
Bond ETFs
Equity ETFs
Source: © 2016 Blackrock, Inc., iShares, as of 31 December 2016 Why are ETFs increasingly popular?
Longevity of Simple way of ETFs perform investing in an investing better than index (less work, many and it’s professional cheaper too) managers Longevity of investing in an index
Trivia Question:
Since the start of the Dow Jones Index in the U.S. (back in 1896), how many companies have continued to remain in the index today? Longevity of investing in an index
Answer:
Only ONE company – General Electric. Early days of Dow Jones Industrial Average
Dow Jones Industrial Average was first calculated on 26 May 1896 comprising only 12 industrial companies.
Founded by Charles Dow and his associate, Edward Jones.
Original companies in Dow Jones Industrial Average, May 1896
Distilling & Cattle Feeding American Cotton Oil Co. North American Co. Co. Tennessee Coal, Iron and American Sugar Co. General Electric Railroad Co.
American Tobacco Co. Laclede Gas Co. U.S. Leather Co.
Chicago Gas Co. National Lead Co. United States Rubber Co.
Source: Dow Jones Indices, as of 28 February 2017. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Longevity of investing in an index
Dow Jones Industrial Average, August 2016
3M Co. Cisco Systems Home Depot Merck & Co. UnitedHealth American Coca-Cola Co. Intel Corp. Microsoft United Tech Express Apple E.I. Du Pont IBM Corp. Nike Inc. Verizon Comm Johnson & Boeing Co. Exxon Mobil Pfizer Inc. Visa Inc. Johnson Procter & Caterpillar General Electric JPMorgan Chase Wal-Mart Stores Gamble Chevron Corp. Goldman Sachs McDonald’s Travelers Cos. Walt Disney Co. Over a period of 25 years, 50% of Dow Jones Industrial Average, May 1991 the components in the index Allied Signal Caterpillar General Electric McDonald’s Texaco Inc. have changed. Alcoa Inc. Chevron Corp. General Motors Merck & Co. Union Carbide American Coca-Cola Co. Goodyear Minnesota Mining United Tech Express AT&T E.I. Du Pont IBM Corp. Philip Morris Walt Disney Co. International Procter & Westinghouse Bethlehem Steel Eastman Kodak Paper Gamble Electric Boeing Co. Exxon Mobil JPMorgan Chase Sears Roebuck Woolworth
Source: Dow Jones Indices, as of 13 August 2016. Companies highlighted in red above illustrate the difference in the constituents of the Dow Jones Industrial Average between Aug 2016 and May 1991. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. Remember this company?
Back in 1976, Kodak controlled 90% market share of photographic sales in the U.S.
Due to the rise of digital photography, Kodak filed for bankruptcy in Jan 2012.
Companies come and go . . . But the stock market index always remains! Disruptive technologies affecting local companies
Are we seeing the The last legs of the Reinventing the end of cable TV? fossil-fuel era? retail shop?
Stock picking is getting harder for the average investor! Many ETFs perform better than professional managers
“ Over a 10 year period, 82.1% of large-cap professional asset managers have failed to outperform the S&P 500 index. ”
Source: SPIVA report, S&P Dow Jones Indices, as of 31 Dec 2014.