Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Private equity in the 1980s wikipedia , lookup
Private equity secondary market wikipedia , lookup
Commodity market wikipedia , lookup
Private money investing wikipedia , lookup
Stock trader wikipedia , lookup
Investment fund wikipedia , lookup
Socially responsible investing wikipedia , lookup
Asset Owners AN ETF EVOLU The market has seen leveraged and inverse exchange-traded fund volumes soar this year. Further growth looks likely in other asset classes too By Christina Wang T aiwan offers a prime example of the ability of exchangegraded funds (ETFs) in their various permutations to gained traction in Asia. While retail investors across much of Asia still favour more traditional buyand-hold investments, many investors in Taiwan are increasingly pursuing more sophisticated strategies such as hedging, speculation and arbitrage. That has led many to seek to invest into leveraged and inverse (L&I) ETFs. Unlike regular ETFs, which are longonly and typically track the movements of an underlying stock index, leveraged ETFs enhance the effective exposure of an investor to the underlying benchmark, while inverse ETFs perform in opposition to the underlying benchmark. Demand for these products has been catered to by a supportive regulator, which has allowed asset managers to pursue product innovation. That in turn has allowed fund managers to draw in assets to the extent that Taiwan only lags Japan in terms of money invested into these products. 24 AsianInvestor November 2016 But the appetite of Taiwan’s investor base is far from infinite, and the market for L&I ETFs may have already hit its peak, even as strong competition has led fees to fall in this already low cost sector. That is leading fund houses to increasingly pitch fixed income and smart beta strategies instead. Both strategies offer potential appeal to pension funds and insurance companies, which want to offer new retirement products at a time of low yields. ETF growth Taiwan’s ETF market was born in 2003 with the launch of the Yuanta/P-shares Taiwan Top 50 ETF. It’s enjoyed rapid growth in the years since, with assets invested into ETFs rising from $1.16 billion at end 2003 to $9.08 billion in September this year, according to research house Keystone Intelligence. In the early days investors took a buy-and-hold stance for ETFs, and some made regular investment plans into this asset class. The dividends and risk diversification offered by stock index ETFs also appealed to pension funds, and increasingly retail investors as they shifted from stock picking to asset allocations, Chou Hui-mei, deputy director general of Taiwan Financial Securities Commission’s securities and futures bureau, told AsianInvestor in an interview. Those dynamics, along with a global rise in passive investing, led Taiwan’s regulator to seek to further develop ETFs. And, increasingly, this has taken place in the L&I space. Assets dedicated to L&I ETFs rose to $5.2 billion by the end of September, according to the Taiwan Stock Exchange. Henry Lin, president of Fubon Asset Management, Taiwan’s second-largest ETF provider, told AsianInvestor that about one to two years ago institutional investors started to build portfolios via ETFs and use the products, including L&I ETFs, for short-term trading purposes. Asset owners in Taiwan have increasingly used L&I ETFs for speculation, arbitrage and hedging “That demand has driven the rapid growth of L&I ETFs in Taiwan in the past two years,” Julian Liu, president and chief executive of Yuanta Securities Investment Trust Company (Yuanta SITC), told AsianInvestor. The company is the largest ETF provider in Taiwan, with a 71% market share. Ivan Han, senior analyst at research house Cerulli, said Taiwan has done more than other nation to grow L&I ETFs this year. For example, the FSC approved L&I futures ETFs to launch in May, and it signed partnerships with countries like Japan, Korea and Malaysia with a view of developing this segment. It also revised rules to allow dual currency ETFs in August, which should lead some of the Rmb311.8 billion of renminbi deposits situated in the state to be invested into the vehicles, Han told AsianInvestor. Investment appetite Yuanta’s Liu noted that institutional investors in Taiwan have increasingly begun using various ETFs in different manners. Typically they maintain their core stock and regular ETF holdings and use leveraged ETFs to increase their positions for short-term return enhancement, while buying inverse ETFs to hedge their long positions. For example, many Taiwan institutional investors have core asset positions in Taiwan and US stocks, so they hold inverse ETFs of these two markets as well. For life insurance companies in particular inverse ETFs are regarded as a better hedging vehicle than futures, which are generally frowned upon due to being a derivative product, Liu said. www.asianinvestor.net TION The desire to hedge has meant that, as of the end of August, the biggest ETF listed in Taiwan was an inverse ETF – the Yuanta Daily Taiwan 50 Bear -1X ETF, with $2.7 billion in AUM. It accounted for 30% of total ETF AUM in Taiwan, according to Keystone data. Outside of L&I ETFs, Taiwan investors tend to have a home bias in their preferences, similar to most other countries, Jackie Choy, Asia director of ETF research at Morningstar, told AsianInvestor. As of end August, ETFs tracking Taiwan markets accounted for 57.5% of the total AUM of ETFs listed in the state, while ones tracking China instruments took up 38.2%, according to Keystone Intelligence. The surge of ETFs stands in marked contrast to traditional mutual funds, which declined 18.7% between the end of 2003 and September this year to NT$2.17 trillion ($68.7 billion). The reasons for this are fairly simple: ETF management and trading fees are far cheaper than actively managed funds and offer an easy means to build asset diversification, Donna Chen, founder and president of Keystone Intelligence, Growth of ETF markets in Taiwan 10 US$b 8 6 4 2 0 03 04 05 06 07 08 09 10111213 14 15 16 Source: Keystone Intelligence and TWSE www.asianinvestor.net told AsianInvestor. Meanwhile many actively managed funds have failed to perform. Product outlook The growth of equity ETFs has been so pronounced in Taiwan that the market is looking close to saturation. Yuanta’s Liu predicts the growth of this type of ETFs to be flat in the coming months. Instead, growth is expected to come from new ETF types, such as bond, commodity, and foreign currency ETFs – all of which have gained approvals in Taiwan. Strategies can vary accordingly, including traditional, leverage, inverse and smart-beta, catering to different investors’ demand, Liu said. In particular, the industry is focusing on offering smart beta ETFs, with the encouragement of the FSC, Chou told AsianInvestor. Some of Taiwan’s pension funds have put big allocations into smart beta strategies, while insurance companies are also seeking tailor-made smart-beta investments, said Fubon’s Lin. Bureau of Labor Funds, the island’s largest pension fund operator, stands as a key example. As of the end of August its overseas smart-beta investments accounted for 32% of the NT$1 trillion it had in foreign mandates. The state pension company plans to continue increasing its allocation to smart-beta strategies because they offer sound and stable returns in the long term and diversify portfolio risks, director general Huang Chao-hsi told AsianInvestor. Insurance companies are mainly looking to invest into smartbeta strategies to gain investment diversification and seeking dividends. Lin said Fubon has helped some insurers construct smart-beta portfolios that combine equities and bonds. Smart-beta products could gain an extra fillip when Taiwan introduces the ‘Speculation and hedging demand has driven L&I ETF growth in the past two years’ Julian Liu, Yuanta Securities & Investment Trust long-anticipated member choice pension schemes, which allow employees to choose their own investment vehicles for their pension contributions, added Lin. A spokesperson of Taiwan Stock Exchange told AsianInvestor that it is working with its subsidiary, Taiwan Index Plus, to develop new innovative indices to meet the demands of the market. This could potentially include indexes that track low volatility and high dividend stocks. Another product type suitable for the retirement theme is bond ETFs, FSC’s Chou told AsianInvestor. The FSC is encouraging the products because it feels they are appropriate to the needs of the country’s aging population and pension funds. To encourage such products the regulator has proposed an exemption of transaction fees for bond ETFs listed in Taiwan. The proposal is awaiting approval from Taiwan’s Legislative Yuan, Chou said. n November 2016 AsianInvestor 25