Malaysian exchange-traded fund versus unit trust: which one is better?

Exchange-traded funds (ETFs) offer a convenient and cost-effective way for investors to invest in various securities. Frequently, ETFs are mistakenly identified as unit trusts. Although they share some similar characteristics, they are actually different. This study uses three and five years of data to examine the performance of a Malaysian ETF and three unit trust funds. The performances of these funds are evaluated using the Sharpe and Treynor ratios, with FTSE Bursa Malaysia KLCI being used as the benchmark. Results reveal that unit trusts generally outperform during the periods under study. Nevertheless, despite this performance difference, ETFs' lower expenses, flexibility, transparency, and strategic benefits present strong arguments against their complete dismissal. Therefore, integrating ETFs into an investment portfolio can contribute to long-term growth and stability, underscoring their value despite comparative performance with unit trusts. The findings of this study may be applied to help investors and fund managers make informed decisions to improve portfolio performance.