[Investment] Exchange Traded Funds (ETFs) vs Unit Trust

Exchange Traded Funds (ETFs) hold a basket of securities to track performance of a specific index. Unit trust funds also hold a portfolio of assets. Nevertheless, both funds have marked differences.

The main differences between ETFs and unit trust funds are:

Investing Objective

ETFs	Passively managed. Designed to follow performance of an index. No active selection of underlying securities and returns made by ETF fund manager. ETF fund manager will closely follow performance of its benchmark index.
Unit Trust Funds	Actively managed. Investors pay fund managers to select stocks (or other securities) in order to outperform a selected index. Performance of unit trust funds depends on the fund manager's skills and the supporting structure provided by the fund management company.
Index Funds	Index Funds Employ the same investing strategy. The main difference is in the cost of investing (sales fees vs. ETFs brokerage charge) and the annual management fee.

Buy and Sell Transactions

ETFs	Listed and quoted on a stock exchange. ETFs are bought and sold like stocks throughout the trading day.
Unit Trust Funds (including index funds)	Buy and sell via agents working for a fund management company or through institutional unit trust agents such as banks. Purchases or redemptions are done at a single price at the end of a trading day as the price of units in a fund depends on the closing price of its components.

Cost to Invest

ETFs	There is a brokerage fee, clearing fee and stamp duty, similar to trading shares. The annual management fee usually is less than 1% of the fund's NAV.
Unit Trust Funds (including index funds)	Usually impose an upfront sales fee between 3% to 5%. Both funds typically levy a back-end charge or exit fee which investors pay when they redeem the fund. Fund's annual management fee can be between 0.75% to 5% per annum of the fund's NAV.

Minimum Investment Amount

ETFs	Like shares, there is no minimum investment amount for ETFs.
Unit Trust Funds (including index funds)	Most unit trusts usually require an initial minimum investment of RM 1,000. Subsequent investments are lower, typically RM 100.

More Similarities and Differences between ETFs and Funds listed here.

	ETFS	Unit Trust Funds
Continuous trading and pricing throughout the trading day?	Yes	No
Prospectus available?	Yes	Yes
Can be purchased online?	Yes	Yes
Redemption charges for withdrawals	No	*Yes
Possible to view the underlying securities?	Yes	**No
Possible to receive dividends?	Yes	Yes

* Only for specific unit trust i.e. through a bank
** Only for specific unit trust funds, typically bond funds.
*** Most funds only reveal their top ten holdings.

(Source: Bursa Malaysia)

[Investment] Guide for REITs - Part 3

This is a continuing blog from Guide for REITs Part 1 and Part 2.

What are the investment considerations for REIT?

REITs vs Property Companies

	REITs	Property Companies
Earning Profile	A REIT is driven by recurring rental income	A property company seeks a combination of property sales, development profits, rental income and property investments
Capital Structure and Cash Flow	A REIT has low and defined level of retained earnings, low debt level defined by the regulators and strong cash flow from operations	A property stock has a high gearing ratio due to high capital expenditure required for property development and sometimes negative cash flow; and low dividend payouts
Dividend Distribution Policy	A REIT will distribute 90% – 100%of its retained earnings before tax	A property stock has no certainty of a dividend payout
Risk Profile	A REIT is a low risk, passive investment vehicle with a high certainty of cash flow from rentals derived from lease agreements with tenants	A property stock has a high development and financial risk
Corporate Governance	REITs are governed by multiple layers of stakeholders – unitholders, manger, trustees, regulating authorities ensuring that interest of minority unitholders are protected	A property stock is often dominated by a controlling shareholder which raises conflict of interest issues with minority shareholders

(Source: Bursa Malaysia)

[Investment] Guide for REITs - Part 2

This is a continuing blog from Guide for REITs Part 1.

What kind of returns can be expected from REITs?

• Typically, the returns to unit holders of a REIT can be in the form of:

1. Income distribution based on the distribution policy stated in the REIT's deed; and/or
2. Capital gains which may arise from appreciation of the REIT's price.

What are the performance indicators of REITs?

• Distribution Yield (DY):
• DY = Income distribution paid to a REIT unit holder/ REIT's price paid by the unit holder

Other indicators include the following which are available in annual reports:

• Net Asset Value (NAV):
• The value of a REIT is based on its tangible real estate holdings. This is calculated by the total assets of a company after subtracting all its liabilities.
• Management expense ratio:
• The percentage of operating expenses (management fees, etc.) incurred to the NAV.
• Total return:
• The change in a REIT's price for the period under review plus any income distribution received during the period.

[Investment] Guide for Real Estate Investment Trust (REIT) - Part 1

What is a REIT?

• A Real Estate Investment Trust (REIT) is a fund or a trust that owns and manages income-producing commercial real estate (shopping complexes, hospitals, plantations, industrial properties, hotels and office blocks).
• A management company for a REIT is permitted to deduct distribution paid to its shareholders from its corporate taxable income. However, to enjoy this tax-free status, the REIT must have most of its assets and income tied to the real estate and distribute at least 90% of its total income to investors/unit holders annually.

List of Malaysia REITs 

Name	Dividend Frequency	Type of Property
KLCCP STAPLED GROUP	Quarter	Office, Mall and Hospitality
PAVILION REIT	Semi-Annual	Office and Mall
IGB REIT	Semi-Annual	Retail Mall
SUNWAY REIT	Quarter	Office, Mall, Healthcare and Hospitality
CAPITAMALLS MALAYSIA TRUST	Semi-Annual	Retail Mall
AXIS REIT	Quarter	Office, Industrial (logistics & manufacturing), Hypermarket
YTL HOSPITALITY REIT	Quarter	Hospitality
AL-'AQAR HEALTHCARE REIT	Semi-Annual	Healthcare
AMFIRST REIT	Semi-Annual	Office, Mall and Hospitality
HEKTAR REIT	Quarter	Mall and Hospitality
UOA REIT	Semi-Annual	Office
AMANAHRAYA REIT	Quarter	Hospitality, Higher Education, Office, Industrial and Mall
QUILL CAPITA TRUST	Semi-Annual	Office and Hypermarket
TOWER REIT	Semi-Annual	Office
ATRIUM REIT	Quarter	Industrial (logistics)