Two of the most well-traded equity futures in Bursa Malaysia are certainly the FTSE4Good Bursa Malaysia Index Futures (F4GM) and FTSE Bursa Malaysia KLCI Futures (FKLI) futures.
In this post, we'll take a look at the difference between F4GM and FKLI futures, and why some traders may find more benefits trading the F4GM futures over FKLI futures.
Overview: What are the F4GM and FKLI futures?
F4GM futures tracks the FTSE4Good Bursa Malaysia (F4GBM) Index as its underlying instrument, with the goal to fulfill the increasing demand from investors to include sustainable investment themes (ESG) into their portfolios.
The F4GBM index represents the performance of more than 100 public-listed companies in Malaysia, be it from small, medium, to large market cap, that demonstrates strong ESG practices. (p.s. For more information on how companies are screened for their ESG practices, check out my previous article HERE)
Meanwhile, the FKLI futures need no introduction as it tracks the FBM KLCI Index - the go-to stock index in Malaysia that indicates the performance of the top 30 largest-listed companies in Malaysia.
High correlation between F4GM and FKLI futures
The F4GM futures is launched for trading in December 2022, signaling the vibrant Malaysia financial market that continue to strive for innovation and meeting the increasing market demand towards ESG offerings.
Since launched, the F4GM futures has displayed a strong correlation with FKLI futures:
Performance comparison: F4GM vs FKLI
In the long run, ESG funds tend to display superior return over traditional funds. For instance, Morgan Stanley Institute for Sustainable Investing noted that global sustainable funds outperformed in 2023 with median returns of 12.6% against traditional funds’ 8.6%.
Meanwhile, the F4GBM Index (the underlying index of F4GM futures) has outperformed the FBM KLCI Index (the underlying index of FKLI futures) in 6 out of 9 previous years.
On an accumulative basis from 2015 to 2023, the F4GBM’s cumulative performance stands at -9.7% which is better than the KLCI’s -17.4%. During Q1 2024, the F4GBM is leading after posting 6.6% of return against the FBM KLCI’s 5.6%.
Benefits of trading F4GM over FKLI futures
#1 Lower trading & clearing cost
Given the high correlation between F4GM and FKLI futures, trading the F4GM futures over FKLI futures may be a good choice for some traders as it incurs a comparatively lower trading & clearing cost by 70%:
FKLI: RM5.00/lot
F4GM: RM1.50/lot
#2 Exposure to Malaysia's public-listed companies that demonstrates strong ESG practices.
Investors or traders with strong ESG awareness could also express their conviction through F4GM futures which allows exposure to large, medium, and small cap public listed companies in Malaysia that display strong ESG practices.
In Q1 2024, the trading volume of F4GM futures hit 40.12 billion shares, which is close to the previous high of 41.54 billion shares achieved in Q2 of 20202. In other words, this signals the rising investors' interest in companies with good ESG practices.
Investors believe that ESG practices could improve a company’s corporate image, trading liquidity and sustainability.
#3 Exposure to a basket of higher performing ESG companies
As discussed in previous section, the underlying index of F4GM futures, the F4GBM index has outperformed the traditional FBM KLCI index in 6 out of 9 previous years.
An interesting thing is that from December 2023 to April 2024, public listed companies that are screened by FTSE Russell with:
Improved ESG ratings improved returns by 13.3 % while;
Companies with ratings maintained registered 12.1% in price appreciation.
During the same period, companies with ratings discontinued and ratings reduced recorded lower returns of 10.9% and 6.5% respectively.
Verdict: ESG equity futures like F4GM futures show tremendous potential for traders over non-ESG offerings
Throughout this post, we've seen the advantages that ESG futures like F4GM futures displayed over traditional equity futures like the FKLI futures.
In the coming posts, we'll further explore more related topics like the seasonality of the F4GM futures - stay tuned!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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