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Kenanga Investors hopes to launch Malaysia's first L&I ETFs by year-end

By Goh Thean Eu   
October 3, 2019

Malaysia’s Kenanga Investors hopes to launch the country’s first leverage and inverse (L&I) exchange-traded funds (ETF) by the end of the year after receiving conditional approval from the securities regulator, its top executive says.

The move comes after the fund management company announced a strategic collaboration with Taiwan’s Yuanta Securities Investment Trust in May 2018 to develop and introduce innovative ETFs such L&I funds.

"We are hoping to launch the ETFs by end of this year," Ismitz Matthew De Alwis, executive director and chief executive officer of Kenanga Investors, tells Asia Asset Management (AAM), adding that the funds will have a two-times leverage factor.

L&I ETFs allow investors to enjoy greater returns from the performance of the underlying index. So a two-times leverage factor ETF will give an investor a 2% gain if the underlying index rises 1%, although losses are also doubly amplified. But leverage and inverse ETFs are typically launched in pairs, which offset the losses. In the case of the inverse ETF, an investor gains 2% if the underlying index drops 1%.

Mr. De Alwis says final approval from Securities Commission Malaysia (SC) is subject to meeting certain conditions set out by the regulator, which he did not specify.

According to a fund manager at a European insurance company in Kuala Lumpur, the new funds could “significantly” boost Malaysia’s ETF market.

"The introduction of L&I ETFs will also help improve the attractiveness of the local stock market, as seen in other markets like Taiwan and South Korea," the fund manager tells AAM, speaking on condition of anonymity.

Although it’s been almost 15 years since Malaysia’s first ETF was launched, SC figures show that there are only 12 funds at present, and that they account for less than 1% of the domestic stock market’s trading volume.

Two years ago, a task force chaired by the SC recommended measures to spur the ETF market, including the introduction of innovative products such as L&I funds.

According to a senior official at Yuanta Securities, L&I ETFs have played a major role in the growth of Taiwan’s ETF market.

Speaking at AAM’s annual Malaysia roundtable this June, Motor Chen, who heads Yuanta Securities’ global investments department, said the trading volume of ETFs in Taiwan was only less than 1% of the overall market before the first L&I fund was introduced in 2014. At that time, there were only 17 listed ETFs on the island.

"Today, there are 200 ETFs listed in Taiwan, and the trading volume represents more than 10%-15% of the overall market," Mr. Chen said at the conference.

Kuala Lumpur-based Kenanga Investors had 8.8 billion ringgit (US$2.10 billion) of assets under management at the end of June 2019.