Taiwan's ETF market continues to bloom

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 a panel on the evolution of ETF products at The Asset 5th Taiwan Investment Summit held in Taipei today.

Julian Liu, chairman at Yuanta SITC; Philip Hu, chairman at Fubon Asset Management; Randolf Tantzscher managing director – indices, Asia Pacific at IHS Markit; and David Lai, partner, co-CIO of Premia Partners, discussed the domestic ETF market which is seeing growth as well as significant change.

One of the most important improvements in Taiwan’s ETF market is regulatory upgrade. The adjusted regulatory framework now enables ETF providers to roll out more diversified and wider range of products, transforming themselves from pure product providers and manufacturers to advisory service providers, according to panellists.

Taiwan ETF providers have been developing ETFs but cannot distribute the products, according to panellists, noting this is an inconvenient pain point. In order to reshape the ETF business model and product, 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 panellist 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 such products, these can keep risk, cost and volatility under control. Some ETF providers are discussing with the regulators on rolling out such products.

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 panellists 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 panellists comment, noting that some investors might understand the concept, but still want to wait and see in terms of performance. 

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