What are ETFs and why is it beneficial to buy them?

Personal Investing - By Ooi Kok Hwa

LATELY, the number of ETFs that get listed on Bursa Malaysia has been increasing.

At present, we have a total of five ETFs listed in Malaysia. Unfortunately, we have noticed that not many investors are aware of these instruments and there is also a lack of understanding on the true value of these ETFs.

ETF stands for exchange-traded fund. Buying into ETFs is almost similar to buying normal mutual funds. The key differences are that investors can buy or sell ETFs in a stock exchange or go through an authorised participant whereas investors can only buy and sell mutual funds through unit trust companies or other financial institutions.

ETF originated in United States. During 1960s and 1970s, some fund managers in the US discovered that it was quite difficult to beat the stock market index. They discovered that it was better to buy stocks that mirrored the index composition as many fund managers found that they tend to underperform the index.

As a result, the ETF industry has been growing in the US from two ETFs in 1995 to more than 900 ETFs listed in the US now. At present, there are many types of ETFs available in the US, for example ETFs on stocks, bonds, commodities, currencies and countries. For stocks, ETFs can be further divided into different types of market capitalisation (big cap vs small cap), equity styles (growth investing vs value investing) as well as different types of sector funds (like ETF on stocks in technology, health care or financial institution sectors).

One of the key advantages of buying into ETFs is that it is cheaper to buy ETFs as compared to normal mutual funds. Investors need to pay about a 5.5% sale charge (also known as front-end load) for normal mutual funds whereas they only need to pay a normal brokearge fee of 0.7% (inclusive of all other charges) for ETFs.

Comparing similar type of funds, the annual management fee for ETFs is generally lower than that of mutual funds.

Normally, ETF will charge about 0.65% per annum (0.6% for the annual management fee and 0.05% for the index license fee).

However, normal mutual funds will charge about 1.5% annual management fee. Assuming an investor intends to buy an index fund and intends to hold the fund for a one-year period, he or she will incur about 1.35% (0.7% - total transaction fee and 0.65% - annual management fee and index license fee).

However, the investor will incur about 7% (5.5% for sale charges and 1.5% for annual management fee) if he buys into the normal mutual funds. Given that ETFs are using the “in-kind” creation and redemption of shares, they eliminate any price discrepancy to net asset value (NAV) due to the supply and demand pressure.

As compared with close-end funds where investors may buy at the premium or discount to its NAV, the price that we pay for ETFs will be closed to its NAV like the normal mutual funds. As an added advantage over mutual funds, ETFs are generally more liquid than normal mutual funds as we can buy and sell them through secondary markets.

Please refer the chart for the mechanism of creating an ETF. The reverse of all of the arrows will be for the redemption of an ETF.

In addition, ETFs provide investors the benefits of portfolio diversification, same as normal mutual funds. Given that they will try to replicate the benchmark indices, their performances will be very close to the indices.

In Malaysia, sometimes we notice that some mutual funds may underperform their benchmark indices.

In short, we believe that there will be more ETFs getting listed on the stock market.

It will be to investors’ benefit to understandhow they can add ETFs onto their investment portfolios as a cost effective investment alternative.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting

Thestar

How Piotroski Beats The Market

If you haven’t heard of Joseph Piotroski, you’re not alone. He’s probably the least well-known of the investment “gurus” who inspired my strategies. Actually, he’s not even a professional investor, but instead an accounting university professor. In 2000, however, Piotroski showed that you don’t need to be a smooth-talking Wall Street hot-shot to make it big in the market.

While teaching at the University of Chicago, he authored a research paper that showed how assessing stocks with simple accounting-based methods could produce excellent returns over the long haul. No fancy formulas, no insider knowledge—just a straightforward assessment of a company’s balance sheet. His study turned quite a few heads on Wall Street. It focused on companies that had high book/market ratios— i.e. the type of unpopular stocks whose book values (total assets minus total liabilities) were high compared to the value investors ascribed to them (their share price multiplied by their number of shares).

Quite often, such firms have low book/market ratios because they are in financial distress, and investors wisely stay away from them. On certain occasions, however, high book/market firms may be good companies that are being overlooked by investors for one reason or another. These firms can be great investment opportunities, because their stock prices will likely jump once Wall Street realizes it’s been shunning a winner.

Through his research, Piotroski developed a methodology to separate the solid but overlooked high book/market firms from high book/market ratio firms that were in financial distress. He found that this method, which included a number of balance-sheet-based criteria, increased the return of a high book/market investor’s portfolio by at least 7.5% annually.

In addition, he found that buying the high book/market firms that passed his strategy and shorting those that didn’t would have produced an impressive 23% average annual return from 1976 and 1996. Since I started tracking it in late February 2004, a 10-stock portfolio picked using my Piotroski-based model has outperformed the market, though with some big ups and downs.

Over its first four-and-a-half years or so, it was more than five times ahead of the S&P 500. It was hit hard—like the rest of the market—in 2008, however, falling more than 37%, and it didn’t bounce back much in 2009, gaining just 6.8%. This year, however, it’s up 18.1%, making it my best performer year-to-date. That means it’s up 35.2% since inception, a period in which the S&P 500 has lost 2.2%.

Let’s take a look at how Piotroski’s approach, and the model I base off of it, work.

Diving into The Balance Sheet
Piotroski wasn’t the first to study high book/market stocks. But his research took things a step further than many past studies. He noted that the majority of high book/market stocks ended up being losers, and that the success of high book/market portfolios was usually dependent on the big gains of a small number of winners. Much as low price/earnings ratio investors like John Neff used a variety of tests to make sure low P/E stocks weren’t rightfully being overlooked because of poor financials, Piotroski sought to separate the high book/market winners from the high book/market losers.

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The first step in this approach is, of course, to find high book/market ratio stocks. In his study, Piotroski focused on the stocks whose book/market ratios were in the top 20% of the market, so that’s the figure I use. That’s the easy part. The harder part is determining whether investors are avoiding a low-B/M stock because it is in financial trouble, or whether the company is a solid one that is simply being overlooked.

The Piotroski-based model looks at a variety of factors to determine this, including return on assets and cash flow from operations, both of which should be positive. Piotroski also thought that good companies had cash from operations that was greater than net income. Such companies are making money because of their business—not because of accounting changes, lawsuits, or other one-time gains.

Several of Piotroski’ other financial criteria don’t necessarily look for fundamental excellence, but instead for improvement. This makes a lot of sense; a company whose return on assets had declined from 10% to 1% and whose cash flow from operations had dwindled from $10 million to $10,000 would pass the above ROA and cash flow tests, for example, but it certainly wouldn’t be the type of strong performer Piotroski was targeting.

Looking at how a company’s fundamentals had been changing allowed him to not only get an idea of the firm’s financial position, but also of whether that position was improving or declining. Among the other “change” criteria Piotroski examined were the long-term debt-asset ratio, which he wanted to be declining; the current ratio (current assets/current liabilities), which he wanted to be increasing; gross margin, which should be rising; and asset turnover, which measures productivity by comparing how much sales a company is making in relation to the amount of assets it owns (That should be increasing).

Excerpted from the September 17, 2010 issue of The Validea Hot List.

做人可糊塗 理財不能不聰明

雖說做人難得糊塗，但對于理財，就須學會聰明！

在當今養兒防老觀念日漸模糊、模糊的年代，不讓下一代變成“啃老族”，花了自己的棺材本，已經是很慶幸的事！

退休后的生活怎么過，都要靠自己預先安排。

吸收資訊很重要，通過書籍、雜誌及報紙等管道，可了解更多，以期達到精明理財的境界。
做人可糊塗，理財不能不聰明，學會以下28件聰明理財事：

1）校準理念

如果已經開始投資，而且經歷了牛市、熊市和不牛不熊的市場，那是一件挺有運氣的事，因為資本市場也就這些變化了。

此時投資者有機會校準一下自己的投資理念，如果通過一個週期觀察，發現與現實相差得太遠，那該換個思路來考慮問題。

2）開始投資

在整個市場既不上漲也不下跌時，是投資者最該試著進入市場的時候。要知道80%的投資者沒有獲得資產收益，主要是沒有獲得好的機會，在市場向上的時候，他們認為市場已經夠高了，但市場跌下來了又開始嘲笑，那些進入市場的人是愚蠢的。

3）認識偶像

投資偶像，其實對市場具有一定的指示性，當人們都說“巴菲特，巴菲特”，那基本上是大牛市的后半程；當人們都說“陰謀，陰謀”，那基本上大家都賠得很慘；還有很多人會信奉一些帶有神經質色彩的專家，這些專家總是在說下跌，這總有蒙對的時候，不過這種情況下市場快接近所謂的底部了。

4）整理零錢

整合目標主要有兩方面，第一種情況是那些零散在你抽屜和錢包裏的借記卡和存摺，這些零散資金有很多已經被可惡的銀行收取小額賬戶費用扣光。第二種情況是巨大零錢賬戶，比如基金分紅賬戶，醫保賬戶還有住房公積金賬戶，這些賬戶裏邊的資金巨大，但只給持有人帶來很小的零存收益，你完全可以把這些錢拿來投資，或者沒有好的投資就把它干脆花掉吧！花錢買快樂，總比把錢消耗于通貨膨脹強得多。

5）投資計劃

投資計劃更像個投資紀律，提醒人在情緒化情況下應該控制自己。

6）看本好書

一本有價值的投資書，會讓你的投資有一個好的開始，很多投資者終其一生都沒有走到比較科學的投資道路上來，就是因為第一次接觸投資的時候，看的書不怎么樣。

7）找本雜誌

要使我們的投資富有成果，傾聽什么樣的理財觀點很重要，一本好的理財雜誌就是這種見解的很好檢索工具。

8）檢查信用

應該給你的信用評級留一點時間，整理一下你的貸款情況，為做好下一筆貸款做點準備，不管怎么說我們越來越需要銀行了。銀行在審核每一筆貸款時，都會判斷借款人的信用情況，而判斷的標準主要就是依據個人信用報告。信用報告對個人來說會越來越重要。

9）淘寶開店

如果有不錯的貨源的話，不妨在淘寶開個店。從理論上說，如果你認為繳稅不是個好主意，那在淘寶上開店就是讓社會整體價值擴大，這對整個社會有好處。這可以適當擴大你的現金流，而且可能還很有趣。

10）投資健康

在不忙的時候別忘了做個身體檢查，要知道保持健康就是最好的理財。如果說理財是一個以幸福為目的的學科，那么失去健康，理財投資也就完全沒有意義了。

中國報

李嘉誠14格言教你成功

1、在20歲前，事業上的成果百分之百靠雙手勤勞換來；20歲至30歲之前，事業已有些小基礎，那10年的成功，10%靠運氣好，90%仍是由勤勞得來；之後，機會的比例也漸漸提高；到現在，運氣已差不多要佔三至四成了。

不敢說一定沒有命運，但假如一件事在天時、地利、人和等方面皆相背時，那肯定不會成功。若我們貿然去做，失敗時便埋怨命運，這是不對的。

2、與新老朋友相交時，都要誠實可靠，避免說大話。要說到做到，不放空炮，做不到的寧可不說。

3、你要相信世界上每一個人都精明，要令人信服並喜歡和你交往，那才最重要。

4、即使本來有一百的力量足以成事，但我要儲足二百的力量去攻，而不是隨便去賭一賭。

5、一般而言，我對那些默默無聞，但做一些對人類有實際貢獻的事情的人，都心存景仰，我很喜歡看關於那些人物的書。無論在醫療、政治、教育、福利哪一方面，對全人類有所幫助的人，我都很佩服。

6、人才取之不盡，用之不竭。你對人好，人家對你好是很自然的，世界上任何人也都可以成為你的核心人物。

7、知人善任，大多數人都會有部份的長處，部份的短處，各盡所能，各得所需，以量才而用為原則。

8、做人最要緊的，是讓人由衷地喜歡你，敬佩你本人，而不是你的財力，也不是表面上的服從。

9、決定一件事時，事先都會小心謹慎研究清楚，當決定後，就勇往直前去做。

10、在劇烈的競爭當中多付出一點，便可多贏一點。就像參加奧運會一樣，你看一、二、三名，跑第一的往往只是快了那麼一點點。

11、人生自有其沉浮，每個人都應該學會忍受生活中屬於自己的一分悲傷，只有這樣，你才能體會到甚麼叫做成功，甚麼叫做真正的幸福。

12、苦難的生活，是我人生的最好鍛煉，尤其是做推銷員，使我學會了不少東西，明白了不少事理。所有這些，是我今天10億、100億也買不到的。

13、在事業上謀求成功，沒有甚麼絕對的公式。但如果能依賴某些原則的話，能將成功的希望提高很多。

14、人們讚譽我是超人，其實我並非天生就是優秀的經營者。到現在我只敢說經營得還可以，我是經歷了很多挫折和磨難之後，才領會了一些經營的要訣。

星洲日報／投資致富

大口喝等于沒喝？你不知道的8个喝水秘密

　　睡前不喝水容易脑中风？喝瓶装水容易喝下细菌？早上起来喝温水、盐水，还是冷水好？有关喝水的知识，一次讲明白。

　　英国一项研究发现，青少年在缺水的状态下，会出现大脑萎缩的状态，而且失水愈多，脑部萎缩愈严重，甚至跟患病2个多月的阿兹海默症患者一样。还好，赶紧喝上两杯水，大脑就会逐渐恢复原本的状态。

　　身体缺水？听起来像是不可能发生的事情，但如果喝的方法与时机错了，就可能让你身体缺水，而且水分不足时，身体不一定会用口渴的方式告诉你，而是不知不觉地从其他地方吸收水分。

　　想要让身体随时随地不缺水，学习8个喝水法，不用花力气花大钱，就能够靠喝水养生。

1、睡前喝水，可预防心肌梗塞或中风

　　这是真的。

　　血液中有七成是水分，身体缺水时，血液就会变得浓缩、黏稠、影响血流，身体就必须提高血压、缩小血管。睡觉时，身体依然会因呼吸、排汗等排出水分，这7～8小时中却无法适时喝水。哈佛大学的研究曾发现，早上6～9点是最常引发心肌梗塞、栓塞型中风的时刻。

　　不过，为了避免有些人半夜起床上厕所会影响睡眠，或老人家可能有跌倒的风险，所以除了肾结石的人外，只要睡前1－2小时有喝水，并且早上起床时立刻喝水，也可达到预防血管阻塞的效果。

　　泡温泉或三温暖前最好也先喝水，这些活动也会流很多汗，血液变浓绸又遇到高温的环境时，会增加心血管的压力。

2、一起床就喝水，改善便秘

　　早上喝一杯水有助肠胃蠕动，改善便秘，若前一晚先把水摆在床头，一坐起床立刻喝下去，效果加倍。

　　新光医院肾脏科医师江守山说，身体从躺着到坐起来时，肠子会因站立反射而开始蠕动，把握这个时候立刻再喝下一杯500cc左右的水，效果会更好。

　　常温冷水比温开水更能刺激肠子蠕动，但勿低于常温，太冷的水反而会抑制肠子蠕动。

　　至于喝温盐水，医生表示，没有证据显示加盐有助排便。加上睡眠中身体已经消耗许多水分，所以喝盐水反而会令人更加口干，尤其早晨时血压通常较高，血压高的人最好还是喝温开水就好。

3、运动前先喝水，表现更亮眼

　　大多数人习惯运动完才喝水，其实最好的方式是在运动前就先喝一杯水。

　　因为运动的目的是训练肌肉并增加血液循环，当血液中水分充足，运动时血液流动才会更顺畅，供应肌肉与细胞充足的氧气与养分，让运动表现更好，不易疲累，也可避免中暑。

4、喝酒时，也要多喝水

　　喝下啤酒时感到清凉畅快，别以为是在补充水分。酒精含有利尿的成分，喝酒后跑厕所，排出的都比喝下去的多，因为酒精成分已经悄悄地把你身体其他地方的水分带走了，而且酒精会使血管扩张，体温上升，也容易造成大脑跟身体缺水。

　　因此喝酒的同时，也别忘了同时补充水分，可以减少隔天起床后口渴、皮肤干燥的情况，也有助减轻隔天的头痛。

　　也不要把茶、咖啡、可乐算入每天所需的水分中。含有咖啡因的饮料，以及含高量钾或柠檬酸的果汁，都有利尿作用，会带走身体多余的水分，因此不能把这些饮料算入你所需要的水分中，最多只能减半计算。

　　早起的第一杯水，也别用果汁、牛奶、咖啡或奶茶取代。新店慈济医院肠胃科医师王嘉齐说，果汁、牛奶算是食物，喝下去后肠胃就得开始消耗能量去消化这些脂肪与糖分了，而空腹喝茶与咖啡则易伤胃。

5、焦躁疲惫时，喝杯水立即头脑清醒

　　刘桂兰中医诊所中医师乐英如说，水具有稳定、滋润、降火的功能。只要缺水，就会有燥与热的表现。除了口渴，舌头或嘴唇太鲜红、干燥、手心与脚掌发热、干咳、便秘等情况，都可能是身体缺水的表现。此外，眼睛或皮肤干涩，也需要多补充水分。

　　突然感到没来由的疲累、情绪焦虑、暴躁，或者大脑沈重且注意力无法集中时，也可能是缺水的表现，试着喝一杯水来恢复活力。老人家改变姿势而产生姿势性低血压的晕眩时，也可能是缺水造成血液量不足所引起。

　　一天平均约要喝2000cc左右的水才够，但应平均分配在一天当中补充，让身体随时都不缺水。也要依照活动量做调整，像是泡热水澡、夏天长时间在外或待在冷气房内，都要多补充1－2杯水。

　　乐英如提醒，有些人觉得水很难喝，是因为水分运送及消化的功能较差，只要喝完一杯水就觉得肚子胀，不舒服。所以，如果觉得喝水很不好喝，也可能是脾胃功能不佳的讯号，就要针对根本的问题就医改善。

6、天黑后才煮开水，水质最佳

　　江守山建议，最好晚上烧开水，水质会最佳，因为水管一整天已经被大量用水清洗干净了。早上起来若立刻烧开水，水质最不好，因为水管静置一个晚上后，容易沉积各种脏物、杂质。

　　此外，用来消毒自来水的氯在接触水中的有机物时，可能会产生影响中枢神经系统的三卤甲烷。所以当开水煮沸至100度时，要打开盖子多煮3－5分钟，以去除水中的三卤甲烷。

　　但打开盖子后，你别站在旁边，并且要同时打开抽风机。因为三卤甲烷挥发成气体时吸入，比溶解在水中更容易被人体吸收。

　　由于无法确定水管中是否含有过量的铅，江守山提醒民众可考虑加装滤水器。

7、大口喝水，等于没喝，切记要小口喝

　　不管是不是大量流汗后，只要喝水时，都要小口小口地喝，因为一次灌下太多水时，肾脏会收到进水太多的讯号，便会加速排尿的速度，反而让喝下去的水立刻流失，没有足够的时间送到身体各地。

　　而且喝水喝太快，也容易引起胀气。

8、瓶装水真的容易长细菌

　　网络上流传，喝瓶装水之后，瓶口过一天就会长出许多细菌，这个说法是真的，最好的方式，还是自己带水壶。

　　王嘉齐说，只要是瓶装的饮料，开罐后都很容易长细菌，尽量不要嘴巴贴着瓶口喝，且不要连续几天都重复使用同一个瓶子。

　　也不要将瓶子放在车上日晒，使塑胶瓶内的化学物质溶入水中。

　　不过，即使是水壶，也要记得每天清洗吸管与瓶身，不锈钢的材质则比塑胶的好。

《联合早报》