Exchange Traded Funds in Malaysia

An entrepreneur must understand finance. He does not need to necessarily understand it like an accountant or investment banker, but he must understand the principles and behavior of finance.  And just as much as he needs to know about making profits and giving back returns on his/her shareholders investments, he/she needs to understand about making the investment itself.

And today I would like to share about a simple unit trust fund that is listed on Bursa Malaysia, an exchange-traded fund or ETF for short.

And yeah, it is just a unit trust fund and if you have lived in Malaysia (and have EPF deposits) chances are you would have been approached by unit trust agents explaining to you about the benefits of investing in unit trust funds. Well, I am not going to do that here, if you need one, just print out your EPF statement and stand by the corner of the road....just kidding.

I like ETF, for the fact that it is a tracker fund and hence it is supposed to be very efficient, both in terms of cost and performance. Index fund allows you to take a position (buy and index) without having to pay a fortune by either going to the futures market or building your own portfolio.

I present below (thanks to Bloomberg.com), the FMB index and its ETF (FBM30).

In the very log run, it seems to track the index well. However, in the medium (see below) and shorter term, there are tracking gaps. These gaps are not necessarily bad if you know how to handle them.






Anyway, this is not to entice or invite you to trade in ETF. It is to invite you to find out more about this beast by either from reading the prospectus or consulting your wealth adviser. Hopefully you would become healthier, wealthier and wiser.

Oh, before I go, there is an shariah compliant alternative to FBM30 ETF, it is the DJIM25 ETF (or MyETF) managed by iVCAP. It seems to be tracking the KLCI index pretty well too. See below.



Not a perfect match (because MyETF is supposed to track the Dow Jones Islamic Index Malaysia Titan 25) but looks to be there.

Salam :-)

My Take on Empowering the Malay Economy, part 1

The PM has spoken. He has an agenda to empower the Malay and Bumiputera's economic power. The agenda focuses on five main thrusts:

• Empowering bumiputra human capital;
• Strengthening bumiputra equity ownership in the corporate sector;
• Strengthening bumiputra non-financial asset ownership;
• Improving bumiputra entrepreneurship and business; and
• Strengthening the services delivery ecosystem. 

I don't have a bone with the thrusters; they seem to make sense - common sense.

But I have some issues with the plans for the thrusters. They seem rushed. I don't believe they would bring a quantum leap in the Malay's economic power; I believe the think-tank could think and come up with something better from their tank.

Before we go on, there is something that we must be clear in our head. I am talking about the Malay economic power (in saying Malay, I am including the Bumiputeras as well) AS A SOCIETY, rather than individual or a segment, a caste. When a policy benefits a few individuals and they get extremely rich from it, it does not translate into Malay Economic power unless they give back much more to the Malay community. We must look at the society as a whole, from the poorest to the richest.

In that regard, we must also understand the demographic of the Malay society that while it is true that past policies have created a larger pool of middle class Malays, the society is still dominated by largely the poor, both in terms of financial education as well as the financial itself. This society is by and large, poor and heavily subsidized.

Lets start with the ASB2; RM10 billion of it. And here are my issues:

• ASB is attractive only because it is a superhigh-return savings scheme. The guarantee of the capital makes it risk free (better than bank deposit (?), maybe, because PIDM has a limit on the guaranteed savings amount) and it gives an equity-based return (way higher than the deposit rate of around 3% per annum).
• That would just make people switch their long term fixed deposit into ASB (those poorer ones who needs to withdraw cash regularly cannot benefit because you need to lock the amount in ASB to fully enjoy the yearly dividend). Who has one year long term deposits? Certainly not the poorer Malays nor even the middle class Malays. It will definitely benefit the richer Malays, those who have maxed out their ASB1. 
• So it looked like this plan would benefit the already rich Malays first. But their number is not that big.
• In my opinion, this ASB  does nothing to promote active economic management of the Malays. Instead it is training the Malays to be passive owners of equity. The term "reign but does not rule" comes to mind. I don't believe that passive ownership of equity would make the society any better at creating and managing economic power - that one comes from owning and operating businesses.
• ASB does not directly and significantly help the Malay society in owning and operating businesses. The moneys in ASB would have to be placed in secure investments so that the managers could manage the risk and give the expected return. Amongst others, they would be invested in companies owned by non-Malays (because they still dominate the real economy, they own the businesses) and when this happens, the capital flows to enhance the economic power of the original owner. They would use the much needed cash to build more businesses and when it has grown big enough, they would then go for listing again - and the cycle continues.
• So, I ask myself, does the Malay businesses really benefit from the ASB? Does the Malay society as a whole benefits from ASB? Do Malay entrepreneurs benefit from ASB? I have great difficulty to say a resounding yes. Menang sorak, kampung tergadai.

ASB1 was relevant back then, to tilt some Malays into middle income class and some middle income Malays into rich ones. It was a quick fix to create purchasing power within the society. But now we need something different. We need production power. We need Malay businesses flourishing in a competitive and sustainable manner. I will share my issues on this segment next time. In the mean time, Selamat Hari Malaysia.

Salam.

Investing in Exchange Traded Funds and Real Estate Investment Trusts

Cash or Profit?

In one of the recent workshops we discussed about how could a profitable company goes bankrupt.

Weird, but it is true.

For all entrepreneurs, it is important to remember that cash is king. While profit, as calculated by the accountant based on accounting principles is important, cash is vital. Accounting allows you to record profits when you don't actually have any cash. Take for example, a RM1,000,000 sales of cokodok that you made to Mr A on credit. Mr A has 90 days to settle the bill.

Accounting wise, you would have recorded a revenue of RM1 million ringgit and if the cost was RM300,000 you would have recorded a profit of RM700,000. This is called accrual based accounting.

The problem is, when the supplier comes to collect his RM150,000 cost or your staff wants their salary at the end of the month, you cannot pay with profit! You need cash. You need cash to pay everyone their dues.

So, while you would be happy with your profitable business, please take a closer look at your cashflow.

Selamat berniaga :-)

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Corporate Finance Training

Foundation in Corporate Finance 22/6/2013 to 22/6/2013
COURSE DETAILS
CPE Points	10
Delivery Medium	Instructor Led Course
Status	Active
Venue	Bukit Kiara Equestrian and Country Resort
Location	Kuala Lumpur
Objectives	1. Describe the regulatory structure of Malaysian Capital Market 2. Discuss the role of capital market in economic growth 3. Identity parties involved in capital market 4.Describe the equity market, bond market and Islamic Capital Market 5. Describe IPO, its rationale, process and valuation methods 6. Describe fixed income securities, its rationale, process and valuation methods 7. Describe mergers and acquisitions, its rationale, process and valuation methods
Level	Refresher: Intermediate: Advanced:
Target Audience	CMSRL holders, Investment Bank Executives, Corporate Finance Executives and Executives who are involved in Corporate Exercises
Jointly-Organised?	No
Type	In-House: Public:
Fees	RM 430 for Public
Remarks
SPEAKER(S)
Encik Muhamad Yazdi bin Che Ya
Curriculum Vitae	SpeakerCV_MY.doc
COURSE OUTLINE
Date	22-6-2013
Total Training Hours	6 hour(s) 30 minute(s)
9 : 00 - 9 : 30	Regulatory structure (Malaysian Context)
Description:	1. The CMSA: an overview of regulations and regulated activities 1a. Issuance of securities 1b. Prospectus requirement 1c. Dealing and giving advice in securities / Corporate Finance 2. Securities Commission 3. Bursa Malaysia 4. Bank Negara
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
9 : 30 - 9 : 45	The Capital Market Overview
Description:	1. Role of Capital Market in economic growth 2. Parties Involved: Investment Bank, Corporate, Regulator & Investors 3. Overview of Equity Market 4. Overview of Bond Market 5. Overview of Islamic Capital Market
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
9 : 45 - 10 : 45	Capital Market Actions
Description:	1. Initial Public Offering 2. Rights Issue 3. Bonus Issue 4. Bonds Issue 5. Sukuk Issue 6. Mergers and acquisition
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
11 : 00 - 13 : 00	Equity Offering: Initial Public offering
Description:	1.The rationale 1a. Alternatives to an IPO 1b. Value proposition for an IPO 1c. When is an IPO not the best 2. Eligibility for IPO 3. The process 3a. Process flow chart 3b. Parties and roles in the IPO process 4. The valuation 4a. Earnings Based 4b. Asset Based 4c. Cash-flow based
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
14 : 00 - 15 : 30	Fixed Income offering: Sukuk Issue
Description:	1. The rationale 1a. Alternatives to Sukuk (Sukuk vs Bonds; Syndicated loans etc) 2. The process 2a. Process flow chart 2b. Parties and roles in the IPO process 3. The valuation 3a. Cash flow based 3b. Rating and pricing
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
15 : 45 - 17 : 00	Mergers and Acquisitions
Description:	1. The rationale 1a. Mergers vs. Acquisition, the difference 2. The process 2a. Process flow chart 2b. Parties and roles in the IPO process 3. The valuation 3a. Earnings Based 3b. Asset Based 3c. Cash-flow based 3d. Share swap
Speaker(s):	Encik Muhamad Yazdi bin Che Ya
Course Outline
FOR INQUIRIES, PLEASE CONTACT
Contact Person(s)	Chan Leng Kei
Address	69-3, Block F, Zenith Corporate Park, Jalan SS7/26, Kelana Jaya, 47301 Petaling Jaya, Selangor
Contact Phone	03-7806 2806 / 16
Contact Fax	03-7806 2800
Contact Email	info@symphonydigest.com
Website	www.symphonydigest.com

My Training Business

In my previous post on moving back on the payroll to support and fund my business ventures (as opposed to seeking government funding/loan etc), one of my passion business, namely the training business has to undergo a change in its business model.

Rather than a full time Training Provider and Speaker, I had to assume a more passive role of Trainer (for Elixireducate) and collaborate with a Training Provider (Symphony Digest).

How did we (Symphony Digest and I) met? Well, I attended one of the training provided by Symphony applying MY First Rule of Business, I offered my service as a trainer for Corporate and Investment topics. What went through my head? 1. There is no shame in making an offer 2. I don't lose anything (ego? doesn't pay for my bills) 3. It is something that I believe that I can do (and I have done it before, but with a different crowd) 4. I know I know my stuff.

I asked my boss and he said it is ok so long as I keep it to weekends on on my day off. We also agreed that this is a great way to market my employer as my audience will be the executives and senior managements of the Malaysian financial industry. Win-win-win scenario

So we decided to give it a go. We were both excited about this prospect.

Symphony had a host of topics that they think I should do. So I applied MY Second Rule of Business "focus". I said lets focus and create a specialization. Let's not bite more than we can chew. So in January 2013 we agreed to start with two topics: First is on Investments in ETF (Exchange Traded Funds) and REITS and the second is on Corporate Finance.

The first training session was on ETF and REITS and it was held on 6 April 2013. The marketing was done in February 2013 and we did not know how the response was going to be; we set the price at a reasonable rate of RM430 per head for a day with lunch. I also marketed the program to my peers and contacts. This will be Yazdi's first time in the market and we did not know how the response is going to be like.I would be very happy if 20 turns up.

In march, I was told initially that 12 signed up. A couple of days later the numbers became 20. But it did not stop there and two weeks before the event, we had to stop taking participants at 60. Symphony said they never had such a large crowd before.

Remember earlier I said that I would be happy if 20 turned up? It changed to me being nervous. Why? The list included directors of banks and heads of investment houses. I know I know my stuffs, but with this crowd, they also know their stuffs. I therefore apply MY Third Businesses rule: prepare to give the best.

In order to give the best, I tripled whatever effort I had planned to expend on this project. If i planned to get 10 source materials, I tripled it to 30. I know that my materials will not be perfect (as perfect does not exist) but I on my way of attaining perfection, I will be really really prepared.

How did it go? I will let the photos tell all :-)

We will be holding another training on Corporate Finance in June. Hopefully we can meet there? Fifteen participants of the previous training already signed up, Alhamdulillah :-)

Dilema Usahawan Melayu, Bahagian 2

Salam to all.

It has been many many moons since I last typed down my ramblings on this blog. I have so much to say, I don't know where to start.

Well, I guess lets start with the person and his comments that inspired and poked me off my fat hind and start typing again. It was a comment to an old (but relevant) rantings of mine: Dilemma Usahawan Melayu. Encik Ramlan Ahmad made a very valid, accurate and critical comment, which went like this
"Assalamu alaikum M, Yazdi,
It is not that there is a acute shortage of Malay entrepreneurs or wannabes but the government machinery/mechanism put in place has been more stifling, exploiting rather than enabling.
As an 28 years experienced and global professional who has had 4 commercial viable ideas presented hijacked by unethical private & government officials who pass it on to their connections for their own vested interest, the current Malay entrepreneurs are faced with a need for "who you know rather than what you know" to become a successful entrepreneur. 
Malays/Muslims in approving positions have forgotten to adhere to Allah SWT's "halal/haram" in carrying out their duties which have led to qualified and capable entrepreneurs not getting the funding opportunities and unqualified pretenders getting it. These funds are then lost as the unqualified entrepreneurs are not able to sustain the business they did not think of in the first place. The modus operandi currently is therefore how to siphon the funds rather than how to develop successful entrepreneurs.
This situation has contributed to the decadence of the Malay and Islamic society and community as "Duit Haram yang berleluasa sekarang diberi kepada anak dan bini untuk makan bersama dan menjadi darah daging mereka" as they are eating "hak orang lain". 
Kalau orang Melayu sudah tak takut Allah SWT dengan memakan duit haram sebab nak kaya cepat then we as a race are destined to follow the footsteps of the once mighty Islamic Ottoman Empire which collapsed due to greed, lust and lack of conformance to the religion of Islamic. Nauzubillah, but it will happen if we don't wake up and repent! "

I agree, it is true. Orang Melayu ni ada idea tapi tak ada duit, mintak duit kena idea kena curi. Sudah jatuh ditimpa tangga lagi...haih..nasib badan...

But if I may, I think we can solve this.  How? We go back to the teachings of our religion, Islam.

But in order for this solution to work, we must employ the teachings that apply to us, our own self, diri kita sendiri, as an entrepreneur. This is because preaching to others is an exercise in futility... most of the time if not all the time. Kalau kita nak harapkan semua orang lain yang memegang amanah untuk mengikut amanat masing masing ataupun orang Islam lain mengikut sunnah dan membantu anda, seorang usahawan Muslim, saya rasa itu kerja yang amat meletihkan. Lets focus more on what we have to do and much less on what we think others need to do.

1. Rezeki itu milik Allah.

Giving up effort is the last thing that you should draw from this statement. Yes, Allah determines who gets what, how much and when. But this is not to say that you should abandon all effort because Allah finally decides despite all your efforts.

Remember, Allah knows best what is good and what is bad for you. No getting the project you have been chasing is not necessarily bad for you. We know much  much less than what Allah knows so if Allah decides that the million dollar project and the money will not be yours, Allah would have done it for your own good.

Allah gave the example in the Quran when the story of Khaidir and Prophet Musa was narrated. Allah bestowed Khaidir knowledge that was not given to Prophet Musa, hence when the former damaged a boat belonging to a poor fisherman (thus in a way taken away his rezeki) the latter thought that an injustice has been done. Prophet Musa DID NOT KNOW that a tyrant was going around confiscating seaworthy boats. And if you put yourself in the shoe of the fisherman, you probably thought that your rezeki is being taken away when someone damaged your boat, not knowing that someone more knowledgeable than you had done something for your own good. Imagine that someone is Allah, the Most Knowing the Most Benevolent, the Most Intelligent, the Most Wise.

So when you have worked hard for something and you did not get what you want, THANK Allah for he has most certainly decided a better decision for you. But it does not mean that you should give up hope. Just like the poor fisherman earlier, he would have fixed his boat just as you should fix or improve your situation to get your share of Allah's bounty.

If your situation / project needs improvement, improve it. If one source has caused your project to be stolen or hijacked  use alternative source, even it is the government. Like the saying goes, "Cheat on me once, shame on you; cheat on me twice, shame on me". Learn from the past and improve your situation for your next project; if you can lose it, that means there are loopholes, either in terms of people, resources or system. Plug it and try again.

If improving would not solve it, move to another platform. Maybe Allah shuts down one path so that you would be forced to use another path which is better for you. Your skills and your experiences do not disappear when people take away your ideas or projects. Use your imagination, vision and diligence for another business.

2. Get creative to get your capital

We Malays always lament that we have not enough capital to start a business. Or that the government of foundation with the capital is not doing enough to help us Muslim entrepreneurs.

I have my opinion on capital where in one of my previous articles, I wrote that

"Lesson 7: It is not the resources, but resourcefulness. You money that is with you is not going to help much in your business and if you just focus on your money, you are limiting your potential. Yes they will help to put food on the table while waiting for your venture to take off and roll in the big dough, but that is about that. As an entrepreneur, you must not be limited by resources. You must be resourceful, able to leverage and use other people's money, resources and ideas. Open your mind, be creative and the sky will definitely be your limit."

We must realise that while we still do apply for the government aid and fund, getting rejected should not be the end of the world. If cash fund is absolutely necessary for your start-up, there are alternatives to getting the grants
a. Scale down the projects
b. Get a job to get the cash - no shame in working for your start-up fund (or running business). But make sure your do your job well
c. Getting partners (Mudharabbah)
d. Family and friends - but be very very careful and honest with these group of people. They are very valuable.

Well, that's all for now. Till next time, feel free to post your comments :-)