Malaysian equity funds consistently beat the index

One of the most common ways that people arrive on this blog is apparently by searching for Malaysian index funds to invest in. Many more visitors than usual have arrived in recent weeks, no doubt due to the current volatility in the market. Apparently my two posts on the subject, this one and this one, rank quite highly on Google when these keywords are used. It is also evident many of these people, no doubt having read research about how index funds due to their low costs are better over the long run, are interested in finding more information about Malaysian index funds.

My own conclusion is not to bother and in fact empirical data indicates that the top equity funds in Malaysia really can beat the KLCI over the long term, even after costs. For example, working with the database available at, I extracted the following for its recommended Malaysian equity funds. Note that all of these are annualized returns:

Recommended Malaysian Equity Funds at FSM

Fund Name1 Year2 Years3 Years5 Years10 Years
FBM KLCI-4.25%6.63%6.11%6.724%6.911%
Kenanga Growth Fund12.36%9.52%17.748%20.404%15.843%
Eastspring Investments Equity Income Fund4.47%7.15%15.109%14.835%10.837%
Kenanga Syariah Growth Fund0.01%7.73%10.921%15.395%13.372%
Affin Hwang AIIMAN Growth Fund0.01%10.10%14.061%12.828%10.038%

As a rationalist, it does frustrate me that such seeming anomalies exist. Not every equity fund outperforms the index, but as far as I can tell, most actually do over the long term, which is surprising according to the literature. I don’t pretend to know how this can be possible and I’ve already discussed some of the possible reasons in those old posts. But it’s hard to escape the conclusion that the Malaysian stock market must be very inefficient at uncovering market information.

A disclaimer: currently I am not personally an investor in any of the funds listed above. I do invest with FSM but only in their international funds. I instead have Malaysian equity funds in Public Mutual for legacy reasons and invest in the local stock market on my personal account. My data for my personal investing record is limited but a preliminary indication is that I outperform the KLCI as well but underperform the best equity funds.

5 thoughts on “Malaysian equity funds consistently beat the index”

  1. Hi Wan, Heng here again, I just read this and am an amateur investor as well. You do realise that KLCI is made up of slow lumbering blue chip stocks whereas the ‘Growth Funds’ you’ve quoted are invested in high growth second liners right?

    If you compare the stock components of KLCI and stock holding of those funds, you’ll find many stock differences that provided the ‘alpha’.

    Example, if you had any money in IFCA in the start of the year, you would have beaten the index handily and by multiple times. It was clear that GST would have given them some boost, but not everyone was wise to it. Big research fund houses are the ones who would be in on it.

    So yeah, if the Malaysian stock market was lucrative enough for lots of people to setup stock research department, maybe the price would have been bidded up earlier and gradually so the gains wouldn’t have been so outsized. The result is Rational.

  2. Yes, one of the points I thought to add to this post was that the FBMKLCI index is a poor indicator of the KLSE as a whole. After all, academic research often specifies that actively managed funds usually can’t beat a broad-based index and the FBMKLCI isn’t broad. But after checking the data, I found that the FBMKLCI actually tracks other indices such as the broader FBMEMAS quite closely, which puzzled me. Maybe even more specialized indices like the FBMSCAP diverges significantly from the FBMKLCI, but after a cursory search I couldn’t find any convenient online tool which would let me do these comparisons.

  3. Posting here in the hopes that you’ll see it, Heng. I tried posting comments in your blog a couple of times (and I’m sure I did it in the past as well), but they never seem to appear.

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