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Taiwan’s exchange traded fund providers are forecast to reap an increase of 50 per cent in revenues from locally listed ETFs this year after already raking in NT$9bn ($280mn) in management fees in the first eight months.
The total is on a par with the NT$9.08bn amassed in the whole of last year and far in excess of the NT$7.08bn collected over the whole of 2022, according to a new report from Keystone Intelligence, which forecasts a total haul of NT$13.5bn for this year.
Even while ETF fees are generally much lower than standard mutual funds, the NT$9bn in total ETF management fees accounted for around one-quarter of the NT$36bn total industry fee income across all investment funds last year.
In Taiwan, management fees range from around 30-40 basis points for domestic equities ETFs and up to 100bp for other types of ETFs including international equities or many types of leveraged and inverse equities ETFs.
Taiwan’s ETF management fees have grown in line with the rapid expansion of ETF industry assets.
Total ETF assets soared nearly 50 per cent over the first eight months of this year, from NT$3.9tn at end of 2023 to NT$5.8tn by end-August.
Donna Chen, Taipei-based founder and president of Keystone Intelligence, said the jump in ETF fee revenues reflected a clear shift among investors in Taiwan towards lower fee ETFs that is squeezing out space for active funds.
“For investors, while low fees are an advantage, many are willing to pay slightly higher fees if the ETF offers added value through strong liquidity, consistent income distribution and robust performance,” she added.
The preference for ETFs had been driven by their cost-efficiency, liquidity and transparency, but active funds still maintained relevance in specific equities and multi-asset segments, Chen said.
Fund firms’ management fee growth for active funds in Taiwan is expected to be between 8 and 10 per cent this year, if market conditions remain stable, according to Keystone Intelligence data.
Total assets in Taiwan-listed ETFs now account for 64 per cent of the onshore funds market, up from just 37 per cent in July 2019 after adding more than NT$4.3tn over the past five years.
With increasingly lopsided growth of passive ETFs and active strategies, Taiwan’s Financial Supervisory Commission has this year begun looking at ways to redress the industry balance.
In January, the regulator asked fund houses to foster the growth of actively managed mutual funds to address this “severe imbalance” as part of a proposed “vision” for the mid to long-term development of the local asset management industry.
With the shift to passive ETFs in Taiwan showing no signs of slowing, a handful of dominant local players have solidified their spots as the biggest beneficiaries.
Yuanta Funds, Taiwan’s largest fund firm and ETF provider, is the clear leader in terms of pulling in ETF management fees, according to Keystone Intelligence data.
Yuanta, with NT$1.79tn in ETF assets as of end-August from 38 products, had amassed NT$3.12bn in ETF management fees over the first eight months of the year.
Cathay Securities Investment Trust, Taiwan’s second-largest ETF business, pulled in NT$1.46bn in management fees over the first eight months of the year. But this was only just above the NT$1.35bn it amassed in 2022 and still quite a bit below the NT$1.74bn it registered last year.
Cathay’s ETF business growth this year has been thwarted after the local watchdog in April banned it from launching any new funds including ETFs for 12 months, and slapped with a NT$1.2mn fine, due to insider trading committed by a fund manager.
Capital Securities Investment Trust, the third-largest ETF provider in Taiwan with NT$916.5mn in ETF assets pulled in NT$1.12bn in management fees. This was far in excess of the NT$570mn it attracted in 2022 and the NT$730mn it recorded last year.
*Ignites Asia is a news service published by FT Specialist for professionals working in the asset management industry. Trials and subscriptions are available at ignitesasia.com.
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