Taiwan’s exchange-traded fund (ETF) sector is experiencing a remarkable boom this year, with ETF issuers projected to collect a staggering $420 million in management fees.
This surge represents a 50% increase in revenues from locally listed ETFs, building on the impressive NT$9 billion ($280 million) already earned in the first eight months of the year.
According to a recent report from Keystone Intelligence, the total fee income for 2024 is expected to reach NT$13.5 billion, matching the NT$9.08 billion accumulated throughout the entire previous year. This marks a significant leap from the NT$7.08 billion collected in 2022, highlighting the rapid expansion of Taiwan’s ETF market.
Despite ETFs typically offering lower fees compared to standard mutual funds, the NT$9 billion in total ETF management fees accounted for approximately one-quarter of the NT$36 billion total industry fee income across all investment funds last year.
Taiwan ETF Fees Surge in 2024
Management fees for ETFs in Taiwan vary, ranging from about 30-40 basis points for domestic equities ETFs to as high as 100 basis points for more specialized ETFs. These include international equities and leveraged or inverse equities ETFs, which tend to carry higher fees due to their complex structures and risk profiles.
The growth in ETF management fees has paralleled the rapid increase in ETF assets. Over the first eight months of 2024, total ETF assets surged by nearly 50%, rising from NT$3.9 trillion at the end of 2023 to NT$5.8 trillion by the end of August. This expansion shows a strong investor appetite for ETFs, driven by their cost-efficiency, liquidity, and transparency.
Donna Chen, founder and president of Keystone Intelligence based in Taipei, attributes the rise in ETF fee revenues to a clear shift among Taiwanese investors towards lower fee ETFs. This trend is squeezing out space for active funds as more investors seek cost-effective investment options without compromising on performance.
Rising ETF Assets in Taiwan
“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,” Chen says.
The preference for ETFs has been primarily driven by their inherent advantages, such as cost-efficiency, liquidity, and transparency. However, active funds remain relevant in specific sectors, particularly within certain equities and multi-asset segments. This balanced demand ensures that while ETFs dominate the market, there remains a place for active management strategies where they can offer distinct benefits.
Fund firms’ management fee growth for active funds in Taiwan is projected to be between 8 and 10% this year, provided market conditions remain stable, according to Keystone Intelligence data. This steady growth underscores the ongoing relevance and resilience of active funds in the investment landscape, even as ETFs continue to gain traction.
ETF Dominance in Taiwan’s Fund Market
Taiwan-listed ETFs now represent a substantial 64% of the onshore funds market, a significant increase from just 37% in July 2019. This growth is fueled by the addition of more than NT$4.3 trillion in ETF assets over the past five years, showcasing the strong and sustained interest in passive investment vehicles.
However, the rapid and lopsided growth of passive ETFs compared to active strategies has caught the attention of Taiwan’s Financial Supervisory Commission. In response, the regulator has initiated measures to balance the industry, ensuring that active funds are not sidelined as ETFs continue to dominate the market.
In January, the Financial Supervisory Commission urged fund houses to promote the growth of actively managed mutual funds to address what it described as a “severe imbalance.” This directive is part of a broader vision for the mid to long-term development of Taiwan’s local asset management industry, aiming to foster a more diversified and resilient investment ecosystem.
Regulatory Efforts to Balance ETF and Active Funds
Despite regulatory efforts, the shift towards passive ETFs in Taiwan shows no signs of slowing down. A handful of dominant local players have solidified their positions as the biggest beneficiaries of this trend, capitalizing on the increasing investor preference for ETFs.
Yuanta Funds, Taiwan’s largest fund firm and ETF provider, stands out as the clear leader in terms of ETF management fees. With NT$1.79 trillion in ETF assets as of the end of August and managing 38 products, Yuanta amassed NT$3.12 billion in ETF management fees over the first eight months of the year. This substantial revenue underscores Yuanta’s dominant position in the Taiwanese ETF market.
Cathay Securities Investment Trust, the country’s second-largest ETF business, pulled in NT$1.46 billion in management fees during the first eight months of 2024. This figure is slightly above the NT$1.35 billion it earned in 2022 but remains below the NT$1.74 billion recorded the previous year.
Cathay’s growth this year has been hampered by regulatory actions, including a ban in April that prevented it from launching any new funds, including ETFs, for 12 months. Additionally, the firm was fined NT$1.2 million due to insider trading by a fund manager, further impacting its ETF business performance.
Capital Securities Investment Trust, the third-largest ETF provider in Taiwan, reported impressive growth in management fees. With NT$916.5 million in ETF assets, Capital Securities pulled in NT$1.12 billion in management fees, a significant increase from the NT$570 million attracted in 2022 and NT$730 million recorded the previous year.