CTBC, the investment arm of Taiwan’s largest private bank CTBC Bank, ventured into passive investment space last October with the launch of its first ETFs, the CTBC MSCI China Free 50 ex A and B Daily Leveraged 2X and CTBC MSCI China Free 50 ex A and B.
The firm rolled out 11 ETFs since then, being one of the most active ETF managers in IPO listing in 2019.
The aggressive product strategies boost CTBC as the island’s fifth largest ETF managers among Taiwan’s 14 ETF providers, only behind traditional market leaders such as Yuanta, Fubon, and Cathay.
CTBC currently has ETF assets of NT$150.7 billion (US$4.94 billion), accounting for 72.7% of its total AUM.
According to Morris Chen, senior vice president of CTBC Investments, product innovation and comprehensive product line-up are the company’s key of success.
Mr Chen highlights that the firm is putting its focus on fixed income products with the growing asset allocation demand from local life insurers.
The 11 ETFs CTBC launched this year are all fixed income products, tracking various type of bonds across Chinese policy bank bonds, Chinese corporate debt, US high grade municipal bond, and long-dated US Treasuries.
Taiwan’s fixed income ETFs recorded a staggering 900% growth in AUM last year with strong institutional flows. Earlier this year, the Financial Supervisory Commission (FSC) tightened the control on institutional investors’ ETF allocation in a move to address potential liquidity risks.
Despite the regulatory straitjacket, Mr Chen believes the fixed income ETF space will still have room for growth, noting that one of the major drivers is the rapid increase in local insurance pools.
Although the FSC caps ETF investments of individual insurers to 10% of their total assets and limits their holdings in ETF IPO listings, Taiwan’s life insurance assets is expected to grow by NT$1.5 trillion per year to NT$30 trillion in one to two years.
It will translate into over NT$8 trillion insurance capital flowing into ETF market over the coming years. In addition, insurers’ average ETF allocation is expected to gradually increase to 7.5% over the longer term, from 4.5% currently, according to Mr Chen.
As such, CTBC will continue to diversify its fixed income ETF line-up to meet varied asset allocation demand, design products with competitive expense ratios and underlying assets. It will also expand its client base to individual investors, he adds.
With the huge growth potentials, some ETF newcomers are adopting similar product strategies to place their emphasis on fixed income ETFs.
For example, Shin Kong Investment rolled out seven bond ETF funds, including Shin Kong 10 Years China Treasury Policy Bank Green Bond ETF, since it ventured into local ETF market in June 2018.
Globally, bond ETF adoption has become more widespread with their low transaction cost. BlackRock previously predicted that global bond ETFs will double its AUM to $2 trillion in less than five years.
According to figures from the SITCA, there were 197 ETFs listed in Taiwan as of October 2019, with NT$1.5 trillion of assets.