As a Malaysian, I grew up knowing about property investing but was never taught to invest in equities. I think I actually bought property and cryptocurrency before buying my first stock!
It took me quite a few years to figure things out and made some poor investments along the way. Today we have quite a multitude of options available and I’ll go through some of the ones I’ve come across and some that I have personally used.
Unit Trusts
What is probably common here is getting sold some expensive actively-managed unit trusts/mutual funds. Pay 3-5% sales charge for the privilege of buying them and 2.5%/year for the privilege of holding them.
Are these fees justified? Well, I’ve yet to find a unit trust that has outperformed their benchmark in the long-run. By charging the high fees, the banks and fund managers are taking a big chunk of your potential profit. Say the market gains 10% that year; the 3% sales fee + 2.5% annual fee you have to pay would mean you only make 4.5% at the end of the day, i.e. giving away 55% of your profits to your adviser and the fund managers! And if the fund loses money, most of the time you’ll still need to pay the fees anyway! 1
2.5% may not sound like much, but compounded over the years, it is a HUGE difference. Some financial advisors will even charge an additional 1% a year for managing your portfolio.
At the end of the day (or rather, decade), it’s hard to do better than the market with unit trusts, especially since very few funds perform consistently well in different market conditions. Worse still, I suspect the unit trusts that get pushed onto retail investors like us are the ones that institutional investors are already getting out of (for a reason!), leaving us smaller fish to hold the bag. Most investors I’ve spoken to are still net-negative on their unit trusts today, while the US market is at their all-time-high!
Where to buy these:
Your bank, your financial advisor, asset management firms such as Amanah Saham (yes ASNB funds are unit trust funds, while some products are low fees, some are very high!), AHAM (high minimum AUM), digital platforms like FSMOne, Versa and Best Investing.
Pros:
- A chance to profit in “less-efficient” markets in Asia and other developing countries and make better returns than the country’s index.
Cons:
- High fees annually and at entry eats into potential gains.
- Fund results may underperform compared to their benchmarks.
- Relationship manager or advisors may push certain funds due to commission incentives.
Robo-investing / Digital Investment Managers
Robo-investing was a buzzword around 2017/2018. Some of them claim to use algorithms to optimize your investments, with little to no human intervention, thus lowering costs compared to unit trusts.
I tried robo-investing with Autowealth (Singapore), which was a great way for me to get started with investing. I just needed to set my equity:bond ratio and deposit some money in every now and then. My investments in US-domiciled ETFs were held with Saxo, and rebalanced during each deposit and also during large market movements such as during covid.
Eventually I left the platform as I wanted to shift into Irish-domiciled ETFs instead of US-domiciled and the additional fees for simple rebalancing didn’t seem justified (over years, it adds up just like unit trust fees).
Today it might be more common to refer to these platforms as “digital investment managers” as they move away from promoting their supposed allocation and rebalancing algorithms and focus on being an easy way to invest in ETFs in Malaysia.
I do think it’s a great way to start investing by using these platforms as you can invest as little as RM10 without worrying about transferring USD and fees of buying stocks directly.
Where to buy these:
Lower-cost platforms that invest in low-cost ETFs: Stashaway, Wahed, Akrü, MyTheo, KDI
!!! Watch out: Some platforms may use terms like “robo-intelligence” or “low cost” but are actually selling unit-trusts with high 1-2% annual fees, charged either by the underlying fund or the platform (e.g. Best Investing, Versa)
Pros:
- Easy to start an account and invest right away
- Low minimum investment amount
- Easy to set up a recurring auto-investment schedule
- No flat rate fee for transferring foreign currency
- No fee/commission for buying or selling ETFs (it’s included in your annual management fee)
- Syariah-compliant ETFs/portfolios available
Cons:
- Pay up to 1% of annual fee on AUM for the simplicity (which in the end might not be simple at all as your portfolio could end up “diversified” with 20-30 different ETFs to justify these fees!)
- Fees are in addition to ETF annual fees (known as expense ratios, usually low)
- Unable to withdraw funds in USD, hence incurring forex conversion fees twice
- No control over their rebalancing mechanism if you wish to stay invested no matter what the market is doing
- Usually only US ETFs are offered, subjecting investors to estate tax risks (total investments > USD60,000) and higher withholding tax rate (30%) on dividend payouts.
Buying Directly
Finally there is also the option of buying stocks and ETFs yourself.
However, up till recently, it wasn’t all that easy or affordable to buy international stocks or ETFs in Malaysia. A few years ago, opening an international brokerage account required printing out 100 pages, filling them out and posting them overseas! Banks have had their own trading platform for US stocks and ETFs for a long time, but they usually charge a minimum fee of 25USD per transaction, ouch.
Thankfully there are now a few local platforms offering US ETFs at lower cost, such as FSMOne, Moomoo, Rakuten Trade, and Smartstocks by Standard Chartered.
However, our current strategy is to buy Irish-domiciled ETFs. These are usually listed on the London Stock Exchange or other European Exchanges. To buy Irish-domiciled stocks/ETFs, the easiest way is to open an international brokerage account such as Interactive Brokers (IBKR) or Charles Schwab. It’s a lot easier nowadays to start accounts with these international brokerages. Applications are fully online and you’ll usually get approval within a few days.
If you want to stick to a local platform, Smartstocks by Standard Chartered has access to the SIX Swiss Exchange where you can also buy Irish-domiciled ETFs such as SPYL (S&P500). The other local platforms only seem to have US, HK and Malaysian stocks as of now. Do note that purchasing stocks on local platforms will incur an additional stamp duty charge of 0.1% in addition to any commission fees.
Pros:
- ETFs have lower annual fees (expense ratios) ranging from 0.02% to 0.25% per year.
- Lower purchase cost than unit trusts (e.g. IBKR charges 0.05% commission or min GBP1 for UK ETFs, USD0.0005/share or min USD1 for US ETFs; FSMOne charges 0.08%/min USD3.80 for US ETFs)
- Usually no platform management/custodial annual fee
- Ability to buy Irish-domiciled ETFs that are safe from US estate tax laws and have better withholding tax rates (15%)
Cons:
- You’ll need to manage your own portfolio
- Local brokerages accept MYR but you may have to use their currency exchange rate to switch to foreign currency
- Some local brokerages don’t allow withdrawal of foreign currency
- In the case of an international brokerage, it may take time to receive your funds and cause delays in your investment schedule
- A minimum cost applies for exchanging MYR to USD and for sending it to your international brokerage account
Which way is best?!
The best method is subjective. Some like to be a bit more hands on and have full control over their portfolio. Some really don’t want to be so involved and prefer to set it on automatic. For those planning to invest more than USD50,000 in index ETFs (not necessarily right away but within a few years), do read up about Irish-domiciled UCITS ETFs over at bogleheads.
I’ll post about my favourite index ETFs another day!
- There are a handful of funds where lower fees are charged if target returns are not hit, but there will still be a base fee that has to be paid. If targets are hit, the fees could be higher than normal! ↩︎
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