ETF market continues to bloom with investors searching for more yield
Taiwan is seeing growth in ETF AUM as well as a wider range of ETFs such as feeder funds and smart beta ETFs helped by regulatory upgrades.
Taiwan’s ETF market continues to grow in terms of asset under management (AUM) in the past 12 months, while also seeing more innovative products, according to the panelists at The Asset’s 5th Taiwan Investment Summit held in Taipei in June.
There is a growing appetite among Taiwanese investors for newer and opportunistic investment strategies. The island has invested around US$750 billion offshore, indicating that investors are constantly on the lookout for investment in foreign locations.
In terms of onshore Taiwanese fund types, there has been a significant change in the allocation strategy by Taiwanese investors exiting their positions in equity and balance strategies and focusing on the fixed income and ETF products. According to data from SITCA (Securities Investment Trust & Consulting Association), assets under management (AUM) grew in fixed income and exchange-traded funds (ETFs) strategies with ETFs seeing a 131.78% increase from March 2018 to March 2019.
“A lot of institutional investors are buying bond ETFs because they benefit from the US dollar appreciation,” explains one of the panelists at the summit.
Some panelists were quick to share that bond tracking ETFs have rapidly grown due to interest from investors. According to figures shared by the Pension Fund Association in Taiwan, there were less than 15 bond ETFs at the start of 2018, but by the end of March 2019 there were close to 75 bond ETFs.
“Investors have chosen the ETF market due to better market access generally,” shares another panelist at the summit.
Another major area of interest for Taiwanese investors is investment-linked insurance products with some members of the audience at the summit mentioning that they had at least five insurance policies. However, members of a panel warned that while this may be good for insurance agents, people should exercise caution with the policies they purchase.
“I think there needs to be education about what can be achieved via these investment-linked insurance policies and how this fits with their goals,” shares one asset manager on stage.
Smart beta ETF is another product that has been gaining traction. However, this kind of product is still very new in this region compared to the US and Europe. The panelists think that some investors in Asia have a general but limited understanding of the ETFs. Most of these investors still think that the ETF is a passive product that tracks indexes. Smart beta in a hybrid format is relatively new to the investors in the region, the panelists comment, noting that some investors might understand the concept, but still want to wait and see in terms of performance.
Despite the dynamic market, there are pain points, especially for Taiwan ETF providers. One panelist mentions that the providers have been developing ETFs but cannot distribute the products.
A regulatory upgrade is helping to solve this problem. The adjusted regulatory framework now enables ETF providers to roll out a more diversified and wider range of products, transforming themselves from pure product providers and manufacturers to advisory service providers, according to panelists. Some ETF providers have launched ETF feeder funds after the upgraded regulation.
This kind of product combines ETFs with active mutual funds. Thus, investors can have both passive and active funds within the portfolio, a panelist explains.
Going forward, there might be products that will use one ETF to capture multiple ETFs. Although there are still some technical difficulties in developing these products, these can keep risk, cost and volatility under control. Some ETF providers are discussing with the regulators about rolling out these products.