First mover advantage matters, in Taiwan as elsewhere

by , 6th January 2018

With first-mover advantage at hand, Taiwan’s Fubon had a record-breaking year, Felix Xu writes.

Taiwan’s second-largest ETF provider, Fubon, notched up significant growth in its ETF AUM last year, due to the popularity of its new products.

According to Patrick Liao, head of the quantitative index investment, 2017 was “the most active year for Fubon in terms of ETF launch”.

Fubon rolled out nine ETF products last year, including the Fubon NASDAQ-100 2X Leverage Index ETF, the Fubon 1-3 Years US Treasury Bond ETF, the Fubon FTSE Developed Europe ETF, and the Fubon Hang Seng H-Share ETF.

The new ETFs were diverse and included thematic beta, fixed income, foreign exposure, plain vanilla, and leveraged and inverse (L&I) products.

Over the past few years, Fubon has put more resources into product innovation to diversify its product offering in order to garner greater local market share.

The effort appears to have paid off with the substantial increase in assets.

“The company made remarkable headway in ETF growth last year,” Mr Liao says, noting that the company racked up US$471 million in ETF AUM last year to reach a record $2.44 billion, from $1.97 billion a year earlier.

It was the fastest ever annual ETF growth for the company.

The Fubon TWSE Corporate Governance 100 ETF raised US$100 million when it was listed on the Taiwan Stock Exchange in May 2017, making it the largest fundraising for an ETF in an initial public offering in Taiwan.

Fubon currently has 30 ETFs in total, and there are more launches planned for 2018.

Mr Liao says that the products in the pipeline “are more or less the same as last year’s”, but declines to reveal their underlying themes and asset classes.

In terms of market landscape, although Taiwan’s ETF market used to be dominated by the largest ETF manger Yuanta five years ago, market shares have become more evenly-distributed in recent years.

With the impetus such as deregulation of alternative ETFs and growing institutional ETF adoption, more local asset managers, like Taishin, have entered the ETF market.

According to industry group the Securities Investment Trust & Consulting Association, the number of Taiwanese ETF managers has grown to nine currently from five in 2015, while the total number of ETFs and index funds listed in the territory was up from 42 to 102.

Taiwanese ETFs

  2015 2017
Total ETFs 42 102
ETF providers 5 9

Despite intensifying competition, Mr Liao believes there is still room for new products as long as ETF providers can customise their products to meet changing market demand.

“The market is far from saturation. It is definitely not a zero-sum game between ETF providers,” he says.

“Overall, whether an ETF can gain investor attraction in Taiwan is very dependent on ‘first-mover advantage’,” he says. “We’ve seen some of our innovative ETFs drew an overwhelming response in the primary market last year,” Mr. Liao says.

For instance, the Fubon TWSE Corporate Governance 100 ETF was well-received because it was the first ETF tracking corporate governance in Taiwan, he adds.

In addition, many local institutional investors are using preferred stocks as an alternative between fixed income and equities for their portfolio allocations.

According to Mr. Liao, the Fubon S&P US Preferred Stock ETF – launched late last year and designed to track preferred stocks with stable dividend payout – drew local institutional investors such as insurance companies and pension funds “as it can provide the investors with a cost-effective access to preferred stocks”.

Fubon had total AUM of $4.4 billion as at June 2017.

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