Taiwan Index Plus Corporation (TIP), a subsidiary of the Taiwan Stock Exchange, is teaming up with the Taiwan Futures Exchange (TFE) to help boost the local ETF market.
As part of a new initiative, the two companies are launching an index series that measures the performance of Taiwan’s stock and futures markets.
Covered call, domestic futures market, and market neutral indices are part of the initial roll out. The companies intend to make revenue licensing the indices to domestic asset owners and fund managers. The indices are scheduled to go live in late-2019.
Futures-backed ETFs already exist in Taiwan.
Yuanta, Taiwan’s largest ETF provider, launched the first futures-backed commodity ETFs in 2015: Yuanta S&P GSCI Gold ER ETF and Yuanta S&P GSCI Crude Oil ER Futures ETF.
Futures-backed ETFs have become increasingly popular recently, as investors seek to hedge against geopolitical risks. Data from TFE shows that the futures ETFs have recorded a 16% growth in total trading volume in 2018.
Despite the fresh trading volumes, William Chen, senior director of R&D department at TIP, said that existing futures ETFs all track single assets, which is not necessarily what institutional investors are after.
He believes wrapping broader markets under a single index will help onboard institutional investors, as it will give them an easier way to pursue sophisticated hedge fund-liked trading strategies.
According to Mr Chen, TIPS will put more emphasis on index customisation and product innovation going forward. Of particular interest is supporting Taiwanese fund managers launch alternative passive strategies.
TIP has compiled more than 87 benchmarks since 2016, and has earned influential clients in Yuanta and the Bureau of Labor Funds (BLF), Taiwan’s labour pension supervisor.
In an important win for the company, TIP provided the benchmark for BLF’s US$1.4 billion five-year passive mandate earlier this year. The benchmark series– an ESG-screened Taiwan index developed with FTSE (“FTSE4Good”) – was also licensed to Yuanta for its first ESG ETFs.
It also licensed the TIP Customized Domestic Demand High Yield index, which mirrors the performance of domestic demand-led Taiwanese companies, to Shin Kong Investment Trust as the benchmark for its domestic demand high dividend ETF.
There are currently more than 127 ETFs listed in Taiwan with total assets under management of over NT$400 billion (US$13 billion), according to the TWSE.