International bond ETFs were Taiwan's most popular ETFs last year by far, a new survey has found, seeing an enormous 174% increase in total assets over the 12 months to November 2019.

The staggering asset growth has meant that US$42.4 billion now sits in Taiwanese international bond ETFs, figures from Taipei-based investment consultancy Keystone Intelligence indicate. Putting this in perspective, the entire Australian ETF market is worth $42bn.

Their growth was so overwhelming that international bond ETFs now make up 33% of the island’s total fund market by AUM.

It was also the fastest growing fund type across all mutual funds, followed by domestic money market funds (MMFs) with a growth of 20.9% and international fixed income mutual funds at 10.9%.

The growth trajectory was primarily owed to heavy ETF listing activity and hunger from domestic institutional investors.

Between January and November 2019, 59 of the 154 fund listings in Taiwan were international bond ETFs with a combined fundraising of $11.6bn.

Cash-rich Taiwanese insurance companies remain the major ETF buyers although the financial regulator has been tightening the control on their fixed income ETF adoption.

Figures from the Financial Supervisory Commission (FSC) show that Taiwanese life insurers have invested as much as NT$1.1 trillion ($33bn) in international bond ETFs as of September 2019.

To ease market liquidity risks, the FSC launched measures in early 2019 to cap ETF investments of individual insurers to 10% of their total assets.

The financial regulator also barred insurers from investing in ETFs tracking junk bonds and bonds that are unrated by the major ratings agencies.

But these measures have done little to deter insurance money from entering bond ETFs for two major reasons.

First, international bond ETFs are considered by insurers as a cost-effective asset allocation tool to circumvent the 65% limit on their total foreign asset allocation.

Second, the average ETF allocation of Taiwanese insurers is still far below the 10% regulatory level.

The fixed income ETF IPO market is still active in 2020, which is highlighted by the fact that four products, Yuanta US 15+ Year Emerging Markets Sovereign Bond ETF, KGI 1-3 Year US Treasury Bond ETF, KGI 1-5 Year Baa-Ba EM (ex China) USD Bond ETF, and KGI 15+ Year US BBB Senior Corp Bond ETF, went live in Taipei Exchange on January 9.