Taiwan's Investment Landscape Transforms: High Dividend Yield ETFs Triumph in the ETF Battle
Taiwan ETFs Achieve Historic High with Resurgence in Overseas Bond ETFs
As the third quarter of this year comes to a close, the statistics reveal that the total assets under management of Exchange-Traded Funds (ETFs) in Taiwan have reached a historic milestone, surpassing an impressive USD 100bn for the first time. As of August 2023, the combined scale of Taiwan ETFs, encompassing both Taiwan stock-based ETFs and overseas-based ETFs, surged YTD 36% in assets, generating much growth than that of onshore funds issued by Taiwan Securities Investment Trust Enterprises (SITEs). Overseas bond ETFs have consistently held a majority share of over 50% in Taiwan's ETF assets for an extended period. In 2023, we are witnessing a remarkable resurgence of overseas bond ETFs, reminiscent of their peak in 2019 when they constituted a dominant 79.5% of the ETF market. In that particular year, while other ETFs experienced outflows, overseas bond ETFs witnessed a remarkable 2.5x increase in assets under management. While after 2020, given the reasons flattering overseas bond ETFs into high was gone, overseas bond ETFs have gradually been back to its normal occupation, accounting for half of total ETF scale. (Please check our previous insight to remind the glory of overseas bond ETFs in 2019- Taiwan Bond ETF, the day after tomorrow). Market believes the Federal Reserve's interest rate hikes are nearing their conclusion, and there is even a possibility of rate cuts next year. As a result, many investors are purchasing long-term U.S. Treasury bond ETFs due to their extended maturity periods. It is estimated that when the Federal Reserve reduces interest rates, bond ETFs have very attractive opportunity to perform. Additionally, U.S. long-term Treasury bonds offer a yield of approximately 4%, making them relatively attractive.
Exhibit 1: Total size of Taiwan ETFs by type.
Taiwan Stock ETFs Poised for Growth to Become the Leading Category, High Dividend Yields Dominate
In 2022, due to the impact of a simultaneous decline in both equities and bonds, according to data from the Securities Investment Trust and Consulting Association (SITCA), the total assets of onshore funds experienced a decrease more than USD3Bn. This marked the end of a continuous growth trend over the past five years. Notably, Taiwan ETFs recording a remarkable year-on-year increase of 64%. To continue the good track of growth momentum, Taiwan Stock ETFs also recorded 40% growth in year to date as of Aug 2023, enjoying the same growth rate of overseas bond ETFs. High dividend yield ETFs have been gaining notable popularity, totaling 14 related ETFs attracted nearly TWD 600Bn, equivalent to USD 20Bn. In addition to investor enthusiasm, high dividend yield ETFs have demonstrated impressive performance. Inclusive the payout dividends, several these ETFs have delivered returns exceeding 30%, and in some cases, even reaching 40%, which pushing a crowd of chasing for high dividend ETFs.
Exhibit 2: Breakdown of ETF types.
The Big Keep Getting Bigger: New-thinking Latecomers Hold the Key to Breakthroughs
The trend of "the big getting bigger" is also prevalent in the ETF market, and it is essential for newcomers to the industry to break through this status quo. In Taiwan, the primary issuer of ETFs is SITE, and the top 7 SITEs in terms of ETF management dominate 90% of the entire market! Among these, Yuanta SITE, being the pioneer and the largest player, has consistently maintained a significant market share exceeding 30%.
As total assets continue to grow, all SITEs benefit from the advantages of scaling their assets, even though differences in market shares may not seem substantial. Notably, the only SITE displaying a distinctive growth pattern is CTBC SITE, which commenced its ETF operations in 2018 and steadily captured over 10% of the market share.
Exhibit 3: Market share of ETF issuers in Taiwan.
Thematic ETFs have also gained significant traction. Taiwan, being a tech island, has a high level of acceptance among investors for thematic investments, particularly in technology themes like 5G. Additionally, the increasing presence of electric vehicles on the roads and the popularity of AI-related topics have further fueled investor interest. Market players are eagerly launching products in these thematic areas, contributing to the overall growth of the market.
As Navigate, a company specializing in capturing long-term market movements and gaining keen insights into the next potential investment trends, we invite you to reach out to us for a deeper exploration!