Young Taiwanese investors drive rapid growth of ETF market
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Exchange traded funds in Taiwan have seen a dramatic surge in popularity over the past year, with one in four Taiwanese investors in their 20s now holding the investment products, data from the Taiwan Depository and Clearing Corporation show.
A total of 27 per cent of all investors in their 20s hold ETFs, one in five investors in their 30s and close to 20 per cent of those under the age of 19, while only 15 per cent of investors over the age of 40 have ETFs.
More widely, by the end of 2020, more than 15 per cent of registered investors in Taiwan, or close to 1m people, owned ETF products, a significant jump from 9 per cent in 2019 and 2 per cent in 2014.
The size of the island’s onshore ETF market swelled by 135 per cent in the two years to the end of 2020 to NT$1.7tn ($60.1bn) and experts believe 2021 will see an ongoing uptick.
ETFs are a relatively new addition to Taiwan’s investment market, for example the Yuanta Taiwan Top 50 ETF, one of the oldest available in the jurisdiction, was launched in 2003. However, partly due to their perceived lower risks and more stable returns, ETFs are gaining favour.
This follows a wider trend in Asia, in which many younger people across the region are reportedly turning to ETF investing online in larger numbers, propelled by lockdowns and more free time during the coronavirus pandemic.
In Taiwan, some of these younger investors are being influenced by self-made online investment “gurus” who promote their strategies and recommendations. This has represented a shift in the island’s retail investor industry, whereby the young generation are increasingly likely to follow the advice of their peers rather than seek advice from a professional finance manager.
The exponential growth of Taiwan’s onshore ETF space also stems from investment companies pushing out more thematic ETF products, including those featuring 5G, new technology and sustainable high dividend stocks.
The growth in Taiwan's ETFs market also demonstrates a wider shift towards passive strategies in the region, which has been most notable in markets like Hong Kong and Taiwan. Taiwan suffered outflows from active funds that were 50 times higher than those from passive products last year.
While the overall ETF market in Taiwan is expanding quickly, its locally domiciled foreign bond ETFs began to lose ground last year amid the appreciation of the new Taiwan dollar and tighter regulations.
Local bond ETFs in Taiwan suffered a slump of NT$81bn in total assets last year, following years of growth, data from the Securities Investment Trust & Consulting Association showed.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.