• Nelson Huang

COVID matters to Taiwan Fund market? Yes. It is.

Updated: Sep 9, 2021

By first half year of 2021, Taiwan Securities Investment Trust Enterprises (“SITEs”) completed initial public offering (IPO) of mutual funds and ETFs this year, raising a total of USD5,044mn in 36 funds. The year till now, types of new funds are quite diversified than the past two years, where equity ETFs favored by the market in the largest extent. In year-to-year respect, fixed income funds and equity funds gained the equal success in terms of IPO numbers, representing that equity type funds are capturing more and more interests from investors, given the fact that market was dominated by fixed income funds for a long time. The booming trend of bond ETFs risen in 2019 was never seen in 2020. As of Jul 2021, there is no bond ETF launched in Taiwan. Most worthy to point out here, none of new fund is launched in July. That’s the only single month that activity of fund IPOs is such silent, according to our survey of IPO statistics since 2019. We assume that the surging confirmed cases of COVID hit Taiwan in May end would be the crucial factor to make everything slow down. Fund market was not escaped from this virus hit. On the ground that many financial institutions let employees working from home to avoid pandemic spread and civil servants to review and approve fund applications also take turns to go to office, it perhaps influence fund IPO activities being deferred.

According to our analysis for Securities Investment Trust and Consulting Association (SITCA)’s statistics starting from 2020, averagely 88 new funds launched in 1-Year rolling spectrum, including still large number of IPO funds in early 2020, the end of super cycle for bond ETFs. Average assets from fund IPOs per year is USD10.6Bn. As of June 2021, total fund-raising amount achieved year-to-date USD5,044mn, which aligns with the historical records. By the slowing down path in July, we are still waiting to see how much the virus circulation is going to impact Taiwan fund market.

Let us look at the new fund types this year to have sense what investors are looking for. Out of the 77 funds in past 12 consecutive months, 12 of them are equity ETFs and 14 are equity funds; bond funds still gained the most business, taking 15 slots. High yield funds again caught SITEs’ favor given market sentiment is alluring more risk-on opportunities. Bond ETFs’ peak time is in 2019, where 52 bond ETFs was launched in a single year. As life insurance companies’ demands drove Bond ETFs soaring to its summit, so has there been a vast Bond ETFs launched in 2019. Similarly, it appears a surge in target maturity bond funds (TMF) in 2018 and 2019, in part driven by demand from Investment Linked Policies significantly. Out of 139 funds in 2019, 72% of them had explicit Bond ETFs and bond funds. However, in 2020 and 2021, the benefits of launching bond ETFs to attract life insurance companies’ capitals are out of the game, due to the fact that Financial Supervisory Commission (FSC) deployed triggers to trim down the high concentration onto bond ETFs. Separately, besides FSC’s further requests on TMF funds, Insurance Bureau also submitted further strict constrains, i.e. credit ratings and tenors of TMFs, bring down launch activities of TMFs after 2019. You can check our insights of Bond ETFs and TMFs to recall their glory histories.

Exhibit 1: Breakdown of new fund types in Taiwan

Surce: SITCA, consolidated by NIC

It’s not easy to complete a fund IPO, which depends on product timeline of all counterparties (SITE, custodian bank, major channels, and regulator etc); hence we notice that the IPO volumes per year, in terms of fund numbers and assets scale, are quite similar. As for fund IPO activities in Taiwan, it appears going randomly so there are no clear clues. Though it seems quarter three has more fund IPOs according to our data starting from 2019, whether zero fund launch in this July may drag the phenomenon or not, let us wait and see.

Exhibit 2: New domestic fund numbers in Taiwan

Source: SITCA, consolidated by NIC

NIC, as the frontier of fund market researchers, aware market movements in sensitively manner. We’d advice right trend and opportunities for you. If you wanna know more news and advanced insights, you have to come to us!