Target-maturity Bond Fund Boost Taiwan Onshore Fund Market
Target-maturity Bond Funds are growing in popularity in retail market of Taiwan onshore fund. Many new products are entering the fray in 2019. The fundraising of every new launches seems getting higher and higher.....
Onshore fund assets in Taiwan rose 10.93% in 2018 to reach a nine-year high of US$85,729 Mn, as investors continue to pile into exchange-traded funds (ETFs) and Target-maturity bond funds. Both fund types are benefited from Insurance company. ETFs are fueled by insurers proprietary investment and target-maturity bond funds are stimulated by mass retail customers looking for products with stable income and investing through investment linked policy.
ETFs increased 117% to US$24,147Mn, account for 28% of the total onshore fund assets and Target-maturity-bond-fund increased 333% to US$4,730Mn, account for 6% of market share. As the demand for ETFs and Target-maturity-bond-fund from investors remains high, more new products are expected to launch in 2019.
Regarding to the market analysis and business opportunities of ETFs in Taiwan, we will discuss in the next “NIC insights”. In this insight, we’re sharing our observation on the development of Target-maturity-bond-funds.
Investment Linked Policies stimulate the sales
The most influential momentum to target-maturity-bond-fund is from Insurers. Insurance policies are Taiwan investor’s favorite financial product options. The total of new insurance policy premium increased 9.5% to US$45,997Mn in 2018 when the investment linked policies (ILP) increased 26% to US$16,778Mn.
Over half of 38 target-maturity-bond-funds are linked to insurance policies with 9 insurers. Nan-Shan Life, China Life and BNP Paribas Cardif Life pulled the most money. The momentum keeps rolling in 2019, there’re 5 new Target-maturity-bond-funds launched in Jan-2019. Eastspring 3-6 Year Maturity Emerging Market Bond Fund and Invesco 2028 Fixed Maturity Selective Emerging Market Debts Fund collected US$353.33Mn and US$384Mn. The former launched in banking channel and the latter launched to link Nan Shan insurance policy.
Investors demand for yield guaranteed products
Target-maturity-bond-funds invest in a portfolio of corporate or sovereign bonds which mature in certain tenor. The target return is around 4%~6% by portfolio assumed yield. It has been marketing like principle-guaranteed fund as if NO default before the mature day. During the volatile market, investors are looking for products with relatively high return than time-deposit and low volatility.
The mature periods differ from 3-year, 4-year, 5-year, 6-year, and up to 10-years. 6-year is the most popular one. As of end-2018, 38 target-maturity-bond funds in Taiwan market, 21 funds are of 6-year mature period and 9 funds are of 4-year. 10-year is the latest type, Invesco launched the 1st 10-year target-maturity-bond-fund in Dec, 2018, Invesco Maturity Selective Emerging Market Bonds 2028 and raised US$384Mn.
Fulfill the needs of SITE, Channels and Insurers
1. SITE’s seeking for low turnover rate and stable AUM 2. Higher sales incentive to Channel sales 3. Insurers diversifies product mix in challenged market
1. SITE’s seeking for low turnover rate and stable AUM
Investors’ redemption ahead of the maturity will be charged an extra 2-3% fee. This punishment scheme stables the AUM when the market volatizes and without 50% redemption rate after the lock-out period experienced in traditional fund product.
2. Higher sales incentive to channel sales
As the target-maturity-bond fund could lock money for 4~10 year with a stable AUM, SITEs could offer better rebate term to channels, Banking Financial Consultants or Insurance m Agents. According to our interview with channel and SITE sales, the incentive of target-date-maturity-bond-fund is 2~3x, even 4x than traditional fund type. This high incentive scheme stimulates channel sales to sell target-maturity fund instead of other products.
3. Insurers diversifies product mix in challenged market
From investment perspective, the environment become challenged for lifers to invest in foreign market under higher and higher hedging cost. That increases the incentive for lifers to shift traditional policies to investment linked policies and gaining fee income rather than absorbing money to increase investment pressure.
Invesco and Schroders lead the market and changed the overall SITE ranking
Invesco and Schroders together lead the market with over half the total market share.
Invesco is the leader over the market with 6 launches and US$1,367Mn in AUM with the most efficiency as the 3rd players entered in to target-maturity-bond-fund market. Its first product, Invesco Maturity Emerging Market Sovereign Bond 2023 Fund established in 2017/7/18 with US$235.87Mn as of Jan-19. The key driver is investment linked policy with Nan-Shan Life.
Schroders is the pioneer to launch the 1st target-maturity-bond-fund in 2016 and as of end-2018, the total size is US$1,179Mn. And at the 1st week of 2019 it launched the 10th product, Schroder 2025 Maturity Emerging Market First Sovereign Bond Fund and raised US$100Mn.
The popularity of the target-date-maturity fund also changed Invesco and Schroders ranking over all SITEs dramatically. Invesco and Schroders used to put more focus on the offshore fund markets. In the end-2017, Invesco is in the 30th place and Schroders is in the 27th place in onshore AUM ranking. However, in the end-2018, after launched the target-maturity-bond-fund, Invesco jump to 19th and Schroders jump to 21st.
SITEs demand for advisory for launch new target-maturity-bond-fund.
Taiwan investors demand for target income products are still growing. More SITEs are entering into the market includes UOB and Pinebridge and as of Feb-2019, there are already 4 new products filed to application since Jan 2019. When the demands still there, SITEs will launch more products and some local SITEs may need advisories for new strategies.
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