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Taiwan’s onshore funds gain traction

The popularity of fixed income ETFs is narrowing the gap between onshore and offshore funds in Taiwan, according to Morningstar.

Data shows that Taiwan investors are increasing their investments in onshore products faster than offshore. At the end of July, onshore funds in Taiwan had assets of NT$3.49trn ($111.2bn) while the offshore figure is NT$3.62trn ($115.4bn) for the same period.

The difference in assets between on- and offshore funds — NT$130bn — figure is on a clear downward trend. In 2018, the gap was NT$613.7bn and in 2017 it was NT$1.18trn, according to data from Taiwan’s Securities Investment Trust and Consulting Association (Sitca).

“For the narrowing gap, fixed maturity products have been a supporting factor, but bond ETFs [in general] were the main driver”, Wing Chan, director of manager research practice from Morningstar, told FSA.

AUM held by Taiwan-listed bond ETFs have surged to NT$500bn ($16bn) from less than NT$50bn at the start of 2018, according to a report by Fitch Ratings. They now exceed the AUM of bond mutual funds.

There are around 80 bond ETFs listed on the Taipei Exchange, and 45 of them were launched in this year, according to Chan. As of the end of July, ETF assets reached NT$1.3 trn, which compares to just NT$373bn at the end of 2018, Sitca data shows.

The catalyst for the sudden popularity was the decision by the Taiwan Insurance Bureau in November last year to include investments in so-called Formosa bonds (foreign currency issues listed on the Taipei exchange by non-domestic companies) into the calculation of insurance companies’ 65.25% foreign investments cap.

These types of ETFs, which side-step the foreign investment restrictions, are growing at a rate of 30% a month, according to Citi research, and are set to generate $40bn of cumulative inflows before the end of 2020, FSA previously reported.

For offshore funds, fixed income is also the most popular asset class, accounting for over half of total offshore assets, with a 15.95% rise in the six months to end of July. In the sector, high yield bond funds had the most assets while emerging market bond funds have experienced the greatest growth, increasing 21.90%.

“This reflects investors’ appetite for the asset class against the backdrop of a rising demand for income generating assets,” Chan noted.

Taiwan onshore funds

Type of fund                                                                        Number of funds  Fund size (NT$)

Source: Securities Investment Trust and Consulting Association (31 July 2019)

Offshore funds by asset class (in NT$bn)

January 2019 July 2019 Market share Change
Equity Fund 1,180.60 1,152.2 32% -2.41%
Bond Fund 89.7 88.7 2% -1.11%
High yield bond fund 781.1 845.9 23% 8.30%
Emerging market bond fund 464.8 566.6 16% 21.90%
Others 305.5 401.8 11% 31.52%
Fixed income fund Subtotal 1,641.1 1,902.9 53% 15.95%
Balanced 540.2 538.8 15% -0.26%
Money market fund 34.6 27 1% -21.97%
Fund of funds 0 0 0% 0.00%
Exchange traded fund 0.14 0.17 0% 21.43%
Others 3.32 3.33 0% 0.30%
Total 3,399.9 3,624.4 100% 6.60%
Source: Securities Investment Trust and Consulting Association (31 July 2019)


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