A multifaceted market
Taiwan’s two-decade-old exchange-traded fund market has been one of the most resilient in the world, chalking up a staggering asset growth of almost 300% in just the past three years, nearly six times faster than the global figure.
Figures from data provider Statista show that global ETF assets grew 54% to US$9.55 trillion between 2019 and 2022.
After breaking the NT$1 trillion ($32.3 billion) mark in 2019, ETF assets in Taiwan have nearly tripled to NT$2.8 trillion this year, on the 20th anniversary of the first ETF launched on the island.
“Taiwan’s ETF market has become more multifaceted. It continues to pick up steam. We expect the market will surpass NT$3 trillion by the end of the year,” Jeff Chang, chairman of Cathay Securities Investment Trust Co, Taiwan’s second largest ETF manager, says in an interview with Asia Asset Management.
Retail investors have been a key driver, with the number surging from one million in 2020 to the current 6.5 million.
According to Chang, the majority of newcomers are young investors who like the low cost and accessibility of ETFs. Moreover, more retail investors are opting to use ETFs rather than active funds to invest in stocks and bonds, especially when markets are as volatile as they have been in recent years.
“They generally look for low beta products such as high dividend ETFs in the volatile market environment,” Chang says. Underscoring this, he points out that net outflows from low beta ETFs were lower than for high beta funds when global markets were battered last year.
Domestic equity ETFs have been a bright spot as earnings of companies listed in Taiwan, especially in the semiconductor and technology sectors, grew nearly ten-fold from 2019 to currently stand at around NT$470 trillion. The benchmark Taiwan Stock Exchange Weighted Index has jumped more than 83% in that period.
“Investors are keen to gain access to these vibrant sectors through equity ETFs,” Chang says.
He also notes that investment trends have been changing, shifting from broad-based index products to bond ETFs, with thematic equity ETFs now also gaining traction.
Taiwanese life insurers who had been using bond ETFs for their foreign investment allocations have slowed down the practice since 2019 when the domestic financial regulator capped their ETF investments to mitigate liquidity risk. Now, according to Chang, the bond ETF market is tilting towards retail investors, with the number almost tripling since 2021 to around 200,000 today.
Cathay Securities Investment Trust entered the ETF space eight years ago. The company has garnered around 20% market share, behind frontrunner Yuanta Securities Investment Trust Co which holds more than one-third of the market.
Competition is becoming stiffer. There are now 15 local ETF managers, up from eight in 2017. Chang says the market is becoming more challenging, especially for small players who don’t have the business scale to vie with top players.
To keep ahead of the game, he advises ETF managers to stay focused on product innovation and sustainability amid rising investor awareness of environmental, social and governance. Citing the Cathay Taiwan Select Sustainability High Yield ETF as an example, he notes that the fund has attracted more than one million subscribers since its launch in 2020.
“We are the first ETF manager [in Taiwan] to integrate ESG with high- dividend strategies,” he says. “Investors embrace the fund as it invests in ESG assets and generates stable cash flows.”