Comparative performance analysis of ETFs and unit trust funds: A Malaysian case

Abstract

Exchange-traded funds (ETFs) and unit trusts provide a convenient and cost-effective way for investors to invest in various securities. Frequently mistakenly identified as the same entity, these two investment products are different, although they share some similarities. This study analyses the performance of a Malaysian ETF alongside three unit trust funds, using data from three and five-year periods. The performance of these funds is assessed using the Sharpe and Treynor ratios, with the FTSE Bursa Malaysia KLCI serving as the benchmark. The results indicate that unit trusts outperform the ETFs during the examined periods. Nevertheless, ETFs must not be excluded entirely just by judging based on this performance disparity. The primary justification for their inclusion is based on the lower expenses, more flexibility, and transparency they possess compared to unit trusts. Therefore, incorporating ETFs into an investment portfolio can contribute to long-term growth and stability. The results of this study are crucial for investors and fund managers, providing them with valuable insights to make better decisions and improve portfolio results.