No online distribution
“To some extent, there is almost no online fund distribution,” Citi’s Aldcroft said, adding that the situation was similar in Hong Kong and Singapore.
However, an online mutual fund distribution platform called Fundrich was set up in 2015 as a joint venture between the Taiwan Depository and Clearing Corporation and the Taipei Exchange, together with 34 domestic and global fund managers.
As of 2018, the platform offers at least 3,000 fund share classes and has around 58,000 clients.
“[But] as of today, the platform has managed around $350m. That is not a lot.”
Yet according to Aldcroft, Fundrich claims to have significantly slowed the rate of fund turnover activity by its users, which is at 60%.
“A typical Taiwanese investor will invest for five months or until they have made a 5% return for an equity fund. If you’re a fixed income fund or a high yield fund, they might hold it for only eight months.”
Besides Fundrich, fund managers may also opt to have their own online distribution channel.
According to JPMAM’s Wong, the firm has an online distribution platform, where investors can get market information and place fund orders. The platform is part of the firm’s direct business, which also includes around 40 client advisors that sell directly to investors. The firm’s direct business accounts for around 20% of its AUM.
Product trends
Separately, Aldcroft discussed products that are becoming popular in Taiwan.
Taiwan’s ETF market, for example, has become the “fastest growing market in the world”, which is now at $25bn from just $4.5bn in 2013, he said.
The market share of ETFs in Taiwan’s onshore market has also grown to 28.2% in 2018 from 14.4% in 2017, which is larger compared to the share of money market funds (27%), equity funds (19%) and fixed income funds (13.9%), according to Citi data.
However, the ETF market is largely domestic.
“There are a lot of new firms that have come into the market. The one notable absentee on that list is there is not a single foreign firm,” he said, but did not elaborate.
Target date funds have also become popular, Aldcroft added. In Taiwan, these funds are structured similarly to those in the US, in which the asset allocation of a mixed-asset product becomes more conservative as the target date approaches. The majority of the target date funds in Taiwan have been set up for three-six year time periods.
These products first appeared in Taiwan in 2016, and has since raised around $3.8bn from investors. Most recently, Eastspring Investments was able to raise $353m for its target maturity fund in Taiwan and has become one of the largest issuers of target date funds (not yet on the list below).
Top issuers of target date funds by AUM
Source: Citi
“The appeal for the issuing fund house is that after setting up a target date fund, you are also restricting the amount of turnover activity,” Aldcroft said. “So instead of having your five-month holding period, which you might get on an equity fund, this could be the whole of the four-six years, which is much more attractive from the point of view of a fund management business.”
