Which is better for investors: stocks, unit trusts or ETFs?
Today, many compare and prefer one over the other.
It seems that stocks, unit trusts and ETFs are entirely different.
Now, if you are new to investing and are scratching your head as to what they are and how they work, read on. In this article, I’ll share their basics and highlight their pros and cons. Of which, as an aspiring investor, you will be able to decide which is more suitable for yourself.
Let’s begin.
Case Study: Public Bank Bhd
Let’s take Public Bank as an example.
In 2025, Public Bank earned RM7.2 billion from offering banking services to its customers. Based on 19.3 billion shares in issue, its earnings per share (EPS) is 37.41 sen. Of which, Public Bank had declared 22.5 sen in dividends per share (DPS).
As I write, Public Bank is trading at RM4.98 a share.
Now, there are three ways investors can choose to invest and own Public Bank’s shares.
Method 1 – Stocks
Investors can buy or sell Public Bank’s shares directly through their stock brokerage accounts. If they own shares of Public Bank, they will collect its DPS declared and choose to either spend or reinvest it to further build their portfolios. Also, they will participate in any capital growth or loss
directly as Public Bank’s shareholders.
This is simple and suitable for investors who prefer to make their own decisions.
They know clearly what stocks to invest in and intend to decide on their own what prices, when, and how much shares they want to invest or divest over time.
It’s about retaining control over investment decisions.
Also, do investors incur any costs after investing in Public Bank’s shares?
Well, after a one-time transaction costs (brokerage and stamp duty), there is no fee charged on keeping or holding onto the investment. Hence, in that sense, it is cost effective.
Method 2 – Unit Trusts
Alternatively, investors can own Public Bank’s shares indirectly via unit trust.
Unit trust is a vehicle that pools funds from investors to invest. For instance, a company forms a unit trust fund known as Fund A. Fund A has successfully raised RM100 million from investors. It then invests the RM100 million raised into investments, which can include Public Bank’s shares.
The decision to invest lies with its fund manager.
The fund manager can decide:
1. whether or not to invest or divest Public Bank’s shares
2. the price to buy or sell for its shares
3. the time to invest or divest
4. The quantity of Public Bank’s shares to be invested or divested
These decisions are done on behalf of investors who pooled in capital into that unit trust.
Investors give away “control over investment decisions” to the fund manager.
Investors who prefer to free their minds (or headache) from making these investment decisions would then compensate the fund manager with annual management fees. The fees payable are based on the fund size (also known as asset under management).
So, if Public Bank (and other major investments) appreciate in stock prices and collectively, they have contributed to a larger size for Fund A, Fund A will earn higher fees from its investors.
But, if the otherwise happens and have resulted in a reduction in fund size, Fund A would earn a lower management fee from its investors.
In either direction, Fund A earns management fees.
Now, what about DPS from Public Bank?
How will investors of Fund A benefit from DPS declared and paid out by Public Bank?
So, let’s say Fund A owns 1 million shares of Public Bank (worth RM4.98 million) today.
The fund manager decides to hold onto it for the long-term.
So, Fund A will receive RM225,000 in dividend income from Public Bank in 2025.
Then, the fund manager can decide to:
1. Keep the RM225,000 in the fund’s bank account.
2. Reinvest the RM225,000 into other stocks or add more Public Bank shares.
3. Distribute the RM225,000 to its fellow investors.
4. All keep some, reinvest some and distribute the remaining portion.
The utilisation of dividend income is decided by the fund manager.
Method 3 – Exchange Traded Funds (ETFs)
For unit trust investors, they incur:
1. One-time sales charge.
2. Annual management and trustee fees.
They hope to leverage on the fund manager’s expertise to invest their capital.
ETFs have a similar structure to unit trust funds.
ETFs also pool in capital from investors to invest.
As ETFs hire fund managers to manage portfolios, investors also pay annual management fees.
But typically, the fees charged could be lower than unit trusts.
Why?
This is because the manager of a unit trust fund does more work than the manager of an ETF. In brief, the fund manager of a unit trust does extensive research and analysis work to build, run, & manage the portfolio. Typically, an ETF is set up to track the performances of a specific industry or market (for instance, the KLCI).
So, if an ETF is formed to track the KLCI, the manager would own stocks, which are members of the KLCI, in accordance to their respective weightage. Hence, if the KLCI has 8% of Stock A, 6% of Stock B, 5% of Stock C and so on and so forth, the manager will “copy & paste” such into that ETF portfolio. In this sense, the manager does less work, thus, earning lesser fees.
Let’s say an investor buys an ETF that tracks the KLCI.
He would own a portfolio of 30 biggest listed companies on Bursa Malaysia, which also includes Public Bank. The ETF earns dividends from Public Bank (and the 30 companies) and its manager decides how best to utilise the dividends similar to a unit trust fund.
But unlike unit trust, investors can buy or sell ETFs directly via their stock brokerage accounts. In this sense, there is no sales charge for ETFs.
So, in a way, ETFs are kind of a hybrid between stocks and unit trust funds.
Conclusion: Which is Suitable?
Once again, here is a table that depicts the differences between stocks, unit trusts and ETFs:
To assess suitability, you may refer to the list of questions below:
1. Do you prefer to make your own investment decisions?
2. Do you have the interest to learn about investing?
3. Do you want to learn about the business model of a company before investing?
4. Do you want a professional fund manager to invest on behalf of you?
5. Do you want to build a portfolio from scratch or own a ready-built portfolio?
6. What are your thoughts about fees?
7. Do you want to invest in a specific company or the overall market?
Your answers will reveal which of the three vehicles is more suitable for yourself.
