Yuanta ETF attracts $5.4bn in 5 days, smashing Taiwan record

A new Taiwan equities high-dividend exchange traded fund from Yuanta Funds has raised about NT$170bn ($5.4bn) in five days, smashing the recently set initial ETF fundraising record.

Taiwan’s Financial Supervisory Commission has confirmed that Yuanta, the market’s largest ETF provider, had set a new fundraising record, the third time it has been broken this month, amid a fundraising frenzy for local ETFs that has raised concerns from the regulator and the parliament.

The new Yuanta Taiwan Value High Dividend ETF, which began fundraising on March 11 and is set to list on the Taiwan stock exchange on April 1, broke the initial fundraising record of NT$53.1bn set by Uni-President Assets Management’s UPAMC Taiwan High Dividend Momentum ETF in early March.

Amid the recent fundraising highs, Huang Tian-mu, chair of the Financial Supervisory Commission, attended a Financial Committee meeting of the Legislative Yuan to address questions including potential overconcentration of constituent stocks in the underlying indices of existing Taiwan equities ETFs.

This article was previously published by Ignites Asia, a title owned by the FT Group.

He noted that the 48 Taiwan equities ETFs now invest in 402 constituent stocks, which is “relatively diversified”.

“The situation is still within the scope that can be managed,” he said. “There is not yet a concern in the market.”

He also explained that Taiwan equities ETFs only account for 2.38 per cent of Taiwan’s stock market capitalisation, and less than 1 per cent of its trading volume, which shows that it is unlikely to have an excessive impact on the stock market.

Lai Shyh-bao, a Kuomintang politician and member of the Financial Committee, questioned whether the FSC was trying to regulate ETFs or their promotional tactics, saying that the regulator had always encouraged retail investors to invest in ETFs, but the recent fundraising frenzy had made ETFs look as unpopular as “a rat crossing the street”.

Huang emphasised that the regulator has never said it would restrict ETFs and still believes that an ETF is a suitable investment product for Taiwanese retail investors.

During a media briefing before the Financial Committee meeting, Huang said the enthusiasm of Taiwanese investors for ETFs in the past few years may be triggered by fear of missing out.

“They are worried that they will miss out the growth [of ETFs], and herding effect is a possible behaviour of any popular investment products,” he said.

“What we are concerned about is whether the fund houses have fully informed investors of the complete information of their products, and whether there is a discrepancy between the information provided and that received by the investors,” he added.

As for the root cause of the now overheated ETF market, Huang pointed out that retail investors want investment products with relatively manageable risks and stable returns.

“Taiwanese retail investors love dividend-paying products, which fund houses have designed to meet their expectations,” he added.

Total assets in Taiwan equities ETFs grew 8 per cent in two months to NT$1.52tn by end of February from NT$1.41tn by end-2023, according to data from the FSC.

Huang also said during the meeting that the FSC was concerned about the embedded marketing campaigns fund houses have with key opinion leaders, which may have provided inconsistent product information and affected investment decisions.

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In a written report to the Legislative Yuan, titled: “From the popularity of ETFs to see how the government can improve the investment pipeline to guide retail capital”, the SFC stated that it planned to strengthen regulatory measures for how fund houses co-operate with key opinion leaders.

Online paid embedded advertisements distributed through key opinion leaders must disclose which fund house is sponsoring the content so investors can identify the advertisers.

And Taiwan’s Securities Investment Trust and Consulting Association is currently discussing the introduction of a new self-regulatory rule to strengthen paid advertising with key opinion leaders before the end of June.

Yang Chin-Long, governor of the Central Bank of Taiwan, last week warned investors to be aware of herding during the Financial Committee meeting.

“Everyone is flocking like sheep, flocking to jump [into the ETF market],” he said. “This is what the financial market calls a herding effect,” he added.

He noted that he thinks the FSC was also aware that the ETF market was “a little too hot” and that measures need to be taken to cool it down.

Shang Kuang-chi, chief secretary of the FSC’s Securities and Futures Bureau, later responded that some investors may have “relatively irrational investment behaviour”.

She made reference to some investors who posted online that they had withdrawn their money from fixed deposits and even applied for loans to subscribe to the new Yuanta Funds’ ETF.

*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.