Exchange Traded Fund as an Investment Tool

11 June 2011

Brief History about ETF

ETF Basics

ETF Features

ETF Structure

ETF Industry

Shariah ETF

Features of Shariah ETF

Application of ETF

Why ETF

Contents

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Brief History about ETF

1989 – Toronto Stock Exchange, first commercially successful ETF

1993 – first ETF listed on US Stock Exchange – SPDR S&P 500

1999 – tracker fund Hong Kong

Malaysia – first ETF (bond) in 2005, ETF equity in 2007

Currently, global ETF NAV stood at US$1.3 trillion across 2,675 ETFs

Brief History about ETF

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ETF Basics

What is an Exchange Traded Fund?

An ETF is a unit trust fund that is listed and traded on a stock exchange

An ETF invests in underlying securities of a benchmark index with the objective of tracking the performance of that index

The benchmark Index is selected by the manager of the ETF based on the asset class/geographical market that the ETF is intended to track

Exchange Traded Fund Basics

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ETF Features

ETFs vs. Stocks vs. Unit Trust Funds ETFs Stocks Unit Trust Funds

Management Style Passive Active Active & Passive

Diversification Yes No Yes

Real-time dissemination

Yes (Trading Hours)

Yes (Trading Hours) No (After 5pm)

Trade via Broker Broker Agent

Purchase Settlement T+3 T+3 Immediate

Minimum Investment

100 units based on market price

100 shares based on market price RM200-RM1000*

*Typical minimum size for actively managed equity funds

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Low Transaction CostsBrokerage commission, stamp duty and clearing fee

No sales charge or front-end fee

Risk Management / DiversificationSimultaneous exposure to basket of securities

TransparencyConstituent stocks, indicative NAV, unit price are readily available

Benefits of Investing in ETF (1)

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Tradeability / LiquidityUnits traded anytime during trading hours of the exchange

Low Expense RatioLess frequent transactions in portfolioLower management fee for passive management

Convenience / AccessibilityMultiple investments in a single transactionRelatively low minimum capital outlay

ExchangeableVia creation and redemption exercise (subject to the ETF’s features)

Benefits of Investing in ETF (2)

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MyETF-DJIM25 25 Stocks Transaction Charges (RM) Gross Cost^ 99.00 Brokerage Charges 40.00 Clearing Fee* 10.00 Stamp Duty 1.00

Transaction Charges (RM) Gross Cost^ 19,086.00 Brokerage Charges 1,000.00 Clearing Fee* 250.00 Stamp Duty 32.00

TOTAL COST RM150.00

TOTAL COST RM20,368.00

^ Based on 1 board lot (100 shares) x Market Price as at 31 May 2011 Maximum brokerage charge of 0.70% per contract value and a minimum of RM40.00 brokerage charge per contract

* Clearing fee of 0.03% of transaction value, maximum of RM1,000.00 and a minimum of RM10.00 per contract. Stamp duty of RM1.00 for RM1,000.00 or fractional part of value of securities, maximum RM200 per contract.

Investment in MyETF-DJIM25 provides cost-effective portfolio diversification to investors

Convenience & Accessibility (Illustration)

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Market RiskPerformance of ETF or its underlying securities may be adversely affected by economic, political or other issues

Tracking ErrorETF performance may not closely track performance of underlying benchmark index

Discount or PremiumETF unit price on the exchange may be at discount or premium to its NAV

Manager Discretion/SkillManager may fail to manage ETF in line with its objectives

Risks of Investing in an ETF

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Participating Dealers (Primary Market)

Usually financial market intermediaries, e.g. investment banks

Investors may participate via the creation of new units through the appointed participating dealers at NAV (subject to minimum size)

Stock Exchange (Secondary Market)

Listed on Bursa Malaysia Securities (or other stock exchange)Similar to trading in stocks/sharesInvestor to have a Central Depository System (CDS) Account and a Trading Account with a brokerMarket price changes throughout the day

How to Invest in ETF

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ETF Structure

sell ETF units

buy ETF units

new ETF units

new ETF units

basket of securities

basket of securities

Investors

Stock Exchange Liquidity Providers

buy /sell ETF units

buy /sell basket of securities

Manager Trustee

Islamic ETF

Participating Dealers

advisory on

Shariah matters

existing ETF units

in-kind redemption

existing ETF units

in-kind redemption

Shariah Adviser/Committee

ETF units

basket of securities

basket of securities

in-kind creation

basket of securities

in-kind creation

Process Flow of Islamic ETF

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In-kind Creation / Redemption Basket (“Perfect Basket”)

A Perfect Basket is a portfolio of securities and cash component (if any) where each security’s weight is the same or substantially the same as that in the benchmark index

This perfect basket is delivered / received by an investor pursuant to a creation / redemption application

The perfect basket is determined by the Manager on daily basis

“Perfect Basket”

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Illustration - MyETF’s Perfect Basket

CreationDelivery of shares of underlying stocks in the “basket”by Participating Dealer in exchange for new ETF unitsThere is minimum creation size in terms of number of ETF units, or creation unit blockNumber of ETF units in circulation will increase

RedemptionDelivery of ETF units by Participating Dealer in exchange for shares of underlying stocks in the “basket”There is minimum redemption size in terms of number of ETF units, usually the same as creation unit blockNumber of ETF units in circulation will decrease

In-Kind Creation and Redemption

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Typical fees & expenses charged to an ETF:

Management fee – paid to ETF Manager/Issuer

Trustee fee

Licence fee – paid to Index Licensor, i.e. index provider

Audit and tax agent’s fees

Administrative expenses e.g. for printing of Fund’s annual reports

Fees & Expenses

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Tracking Error

Most relevant performance measure for ETF

Reflects the difference between the performance of the ETF and the performance of the benchmark index

Objective is to minimise Tracking Error (in other words, to achieve high positive correlation)

Tracking Error may result from:

Fees (e.g. manager, trustee) and expenses (e.g. rebalancing)

Dividends

The Manager may judiciously rebalance the portfolio to improve correlation or to rectify the divergence (i.e. Tracking Error), if any

Performance Measurement of ETFs

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ETF Industry

ETF is still a relatively new investment tool in Malaysia

Regulators (SC and Bursa) are very keen to develop ETF industry in the country – primary and cross listings, in RM and foreign currencies

Fund Name Listing Date Fund Size*ABF Malaysia Bond Index Fund Jul 18, 2005 RM581.01m

FTSE Bursa Malaysia KLCI ETF Jul 2, 2007 RM3.93m

MyETF Dow Jones Islamic Market Malaysia Titans 25 Jan 31, 2008 RM593.96m

CIMB FTSE ASEAN 40 MALAYSIA Jul 9, 2010 RM12.61m

CIMB FTSE CHINA 25 Jul 9, 2010 RM20.51m

Malaysian ETF Industry

* As at 31 May 2011

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Shariah ETFs

MyETF-DJIM25

Listed on Main Market of Bursa Securities on 31 January 2008

1st Shariah ETF listed in Asia and largest Shariah ETF in the world to date (NAV: RM615mil / US$195mil as at 30 November 2010)

National ETF with seven (7) Government-linked investment companies (GLICs) seeding the underlying basket of securities during initial subscription period

Received Honourable Mention in two categories (Equity Deal of the Year & Malaysia Deal of the Year) in Islamic Finance newsDeals of the Year 2008 Awards

MyETF-DJIM25 (1)

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MyETF-DJIM25 (2)FUND INFORMATION

The Fund MyETF-DJIM25 Benchmark Dow Jones Islamic Market Malaysia Titans 25 (DJIM25) Index

Investor Profile

Suitable for both institutional and retail investors as the Fundinvests in securities of a diversified range of companies.Also suitable for investors seeking Shariah compliant investment.

Investment Objective

The Fund is designed to provide investment results that closely correspond to the performance of the Benchmark Index, regardless of the Index’s performance

Investment Strategy

The Manager will seek to track the performance of the Benchmark Index by investing all, or substantially all, of the Fund’s assets in the constituents of the Benchmark Index in substantially the same weightings as they appear on the Benchmark Index.

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MyETF-DJIM25 (3)FUND INFORMATION

Asset Allocation Equity (Index Shares) : At least 90%Cash / Cash equivalents : Not more than 10%

Main Risks Market VolatilityTracking ErrorLiquidityTrading Discount / Premium

Distribution Policy Cash distributions (if any) are to be made semi-annually subject to compliance with the relevant guidelines

Annual Fees(charged to the Fund)

Management Fee: 0.40% Trustee Fee: 0.05% License Fee: 0.04% Other Fees: 0.05% (Up to)Total Fees 0.54% (Up to)

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MyETF-DJIM25 (4)Top 10 Constituents of the Fund as at 31 May 2011

STOCK CODE SHARES4197 SIME DARBY BERHAD

5183 PETRONAS CHEMICALS GROUP BERHAD

1961 IOI CORPORATION BERHAD

6012 MAXIS BERHAD

2445 KUALA LUMPUR KEPONG BERHAD

6947 DIGI.COM BERHAD

5398 GAMUDA BERHAD

3816 MISC BERHAD

5052 PLUS EXPRESSWAYS BERHAD

4863 TELEKOM MALAYSIA BERHAD 28

MyETF-DJIM25 (5)Sector* breakdown as at 31 May 2011

SECTOR NO. OF COUNTERS INDEX WEIGHTOIL & GAS / ENERGY 6 22.99%

PLANTATIONS 5 22.37%

TELECOMMUNICATIONS 3 18.49%

CONGLOMERATES 1 14.75%

INFRASTRUCTURE 3 10.25%

TRANSPORTATION 3 6.83%

OTHERS 4 4.32%

TOTAL 25 100.00%

* Percentages do not take into account cash in the Fund of 1.06% 29

MyETF-DJIM25 (6)MyETF-DJIM25 & DJIM25 Index Performance as at 31 May 2011

YTD 2010 2009 2008

Since Inception

*

MyETF-DJIM25 (Price) RM0.990 4.54% 16.22% 34.43% -39.00% -1.00%

MyETF-DJIM25 (NAV) RM0.9954 3.25% 16.29% 40.95% -41.91% -0.46%

DJIM25 Index 887.13 2.39% 12.81% 39.46% -44.16% -8.00%Income Distribution (sen/unit)

1.00^ 0.55

Tracking Error 1.24%* Since 21 January 2008 ^Announced on 16 Dec 2010 and distributed on 31 Jan 2011Sources: Bloomberg & i-VCAP

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MyETF-DJIM25 (7)MyETF-DJIM25 is managed by i-VCAP Management Sdn. Bhd.

i-VCAP is wholly owned by Valuecap Sdn. Bhd. which in turn is equally owned by Khazanah Nasional Berhad, Permodalan Nasional Berhad & Kumpulan Wang Persaraan (Diperbadankan)

The Fund is backed by other reputable players in the industry

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Features of Shariah ETF

Dow JonesShariahAdvisory Board

• Screens the securities to be included in the index based on qualitative and quantitative/financial criteria

• Qualitative criteria include screening of sector/industry

• Quantitative criteria include screening of financial ratios

SC ShariahAdvisoryCouncil (“SAC”)

• Securities held in the ETF must be on SAC-approved list

• Index shares not on SAC-approved list cannot be held in the Fund

Shariah Advisor of the Fund

• Verifies that securities held in the Fund comply with SAC-approved list

• Also verifies that processes and procedures of ETF Manager comply with Shariah requirements

Screening of Securities

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Applications of ETF

Portfolio Construction

The ETF becomes the core component of the investment portfolio while single securities are added to gain “overweight” or “secondary” positions.

Series of ETFs provide peripheral components of the investment portfolio where the main portion is invested in single securities.

A Fund of Funds strategy utilising ETFs to represent various asset classes, sectors, regions, in a diversified portfolio without investing in single security

Trading The opportunity to trade and arbitrage between the ETF’s listed price (secondary market) and NAV/unit (primary market)

Applications of ETF

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Why ETF

Why ETFConvenient and cost efficient portfolio diversification through a single transaction

Fund’s transparency where the component stocks and prices are readily available during trading hours on the exchange

Effective risk management strategy in current volatile markets –maintain presence in equities without direct exposure to single stock

Simultaneous exposure to leading equities listed on Bursa Malaysia

Lower management fee compared to actively managed unit trust funds which do not necessarily provide higher returns

Lower transaction charges compared to most equity unit trust funds

May provide arbitrage opportunities due to its exchangeable feature. 37

The Fund is intended to be made available only in Malaysia. We recommend that you read and understand the contents of the Prospectus for MyETF-DJIM25 that has been registered with the Securities Commission, who takes no responsibility for its contents, before investing. You may view the Prospectus at the Fund’s website or obtain a printed copy of the Prospectus from i-VCAP Management Sdn. Bhd.’s office. Please consider the fees, charges and risks involved prior to investing. The unit price and income distribution, if any, may rise or fall. Past performance of a fund is not indicative of future performance. You are advised to seek independent advice and/or consult relevant laws, regulations and rules prior to investing.

Disclaimer

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THANK YOU

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i-VCAP Management Sdn. Bhd.Level 9, Block B, HP Towers

No. 12 Jalan GelenggangBukit Damansara

50490 Kuala LumpurMalaysia

Tel: +603 2093 7119Fax: +603 2094 7119info@myetf.com.mywww.myetf.com.my