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ESG gains new interest in Taiwan

  • Asia
  • Global
  • Taiwan
Yield-seeking investors have been raising their fixed asset holdings

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Taiwanese institutional investors have been actively rebalancing their fixed income portfolios to take advantage of fluctuating asset prices in the wake of the coronavirus crisis, according to PineBridge Taiwan Chief Investment Officer Steven Huang.

He says asset owners on the island have been increasing their holdings in fixed income and multi-asset strategies in recent months for the yield, and to hedge against volatile stock prices.

He says investors cut back their risky holdings to lock in profits in the first quarter when the bond market was on the uptrend. They then pursued bottom fishing to buy back various types of fixed income, including investment grade, high-yield and emerging-market bonds, at lower prices.

“Overall, we believe the market has been rebounding with net inflows into our fixed income funds in recent months,” Mr. Huang says in an interview with Asia Asset Management.

He emphasises that bonds remain key to generate stable cash flows and investment returns in the ongoing low interest rate environment.

He says many Taiwanese investors prefer to use investment grade bonds as a core allocation in their fixed income portfolio, complemented with emerging-market and high-yield bonds as “satellite strategies”. Given regulatory restrictions on allocation to high-yield debt, he says this core-and-satellite strategy can help investors to better adjust their fixed income portfolio to meet investment targets.

Taiwanese asset owners tend to be yield seekers. This is particularly obvious among local insurers which have to target more stable returns in order to meet liabilities.

“[Taiwanese insurers] are generally looking for a targeted annual return of 3%-4% after currency hedge for their overseas fixed income investments to cover funding cost of their operations,” Mr. Huang says, adding that they prioritise long-term quality offshore bonds, including those issued by US or European telecommunication and financial companies.

ESG investing

According to Mr. Huang, environmental, social and governance (ESG) investing is increasingly popular across fixed income mutual funds and segregated mandates in Taiwan as local investors become more conscious about sustainable investing.

There are several approaches for fund managers to include ESG principles in their funds or strategies. For instance, some managers incorporate ESG factors in their investment process, and some adopt negative screening to exclude companies that do not comply with specific ESG criteria.

PineBridge Taiwan launched its first quantitative ESG bond fund earlier this year. “The fund primarily invests in bonds with a positive or neutral rating under our internal ESG assessment system,” Mr. Huang says.

The company also introduced a frontier emerging-market high-yield bond fund and a target maturity emerging-market bond fund in the fourth quarter of 2019. It now has nine bond funds.

Mr. Huang says PineBridge Taiwan’s fixed income funds grew from NT$69.2 billion (US$2.35 billion) in January this year to NT$74.3 billion as of June 2020, accounting for about half of its total assets under management.

“Our fixed income strategy mix is very comprehensive, covering various fixed income assets such as US MBS [mortgage-backed securities] and emerging-market high-yield and investment grade,” he says. “Looking ahead, the company will continue to launch new products.”

PineBridge is at the forefront of product innovation and broadening its client base to grow existing funds. In addition to the first ESG bond fund, PineBridge launched the first onshore global high-yield fund in 2008, and the first preferred fund in 2017 with assets under management of NT$48 billion, the largest overseas equity fund.

Last year, the Financial Supervisory Commission introduced measures to tighten control over Taiwanese insurers’ investments in bond ETFs to address market liquidity and concentration risk.

Mr. Huang says the move is beneficial for PineBridge Taiwan as local insurers may shift their focus to active fixed income strategies.

“Taiwanese insurers are very cash rich, so the demand is still there…We believe they will go for top fixed income managers like us when they invest in active bond funds,” he says.