Taiwan-listed exchange traded funds investing in domestic equities saw their highest-ever monthly net inflows in May, despite a surge in coronavirus cases and a domestic stock market slump in the middle of the month.
The interest in ETFs contrasted with the performance of Taiwan’s equities mutual funds, which saw their combined assets shrink for the first time since October last year.
Even as Taiwan succumbed to its first major Covid-19 outbreak last month, local institutional and retail investors piled into domestic stock ETFs at a record pace, pushing the country’s total ETF assets to NT$1.82tn ($65.5bn).
Local equities ETFs recorded net inflows of NT$61.3bn last month, surpassing the previous record of NT$50.3bn seen in March last year, according to data from the Securities Investment Trust & Consulting Association (Sitca). Total assets under management for local equities ETFs reached NT$378.4bn, which is also the highest on record.
“At volatile times like this, buying ETFs allows investors to immediately react to market changes since ETFs, compared with mutual funds, often have more liquidity,” Donna Chen, Taipei-based founder and president of Keystone Intelligence, said.
“It can also be cheaper. In Taiwan, ETFs normally have a subscription fee much lower than mutual funds’ 1.6 per cent level,” Chen added.
The number of retail investors in local equities ETFs has risen by more than 50 per cent since the end of last year to 1.64m in May.
“Mutual funds and ETFs in Taiwan differ slightly in terms of who their most loyal customers are. Young people tend to prefer ETFs, while older investors like mutual funds, especially high-income ones with monthly dividend payouts,” an executive at Yuanta Securities Investment Trust said.
The majority of new flows in May went into local stock ETFs, with the oldest and largest ETF in Taiwan, the Yuanta/P-shares Taiwan Top 50 ETF, attracting the lion’s share of the new money.
The ETF pulled in NT$36.03bn of net inflows in May, accounting for 58.8 per cent of the total net flows into local stock ETFs that month, Sitca data show.
Institutional investors rushed into the product to buy the stock market dip in mid-May and take advantage of the upcoming dividend payout season in June and July, according to the Yuanta executive.
In contrast to their ETF peers, Taiwan’s domestic equities mutual funds saw modest net inflows of only NT$12.2bn in May, while their asset size shrank for the first time since October last year due to sharp asset price fall because of the market slump.
Assets in these domestic stock funds fell by NT$8.06bn to NT$330.3bn in May, in marked contrast with months of massive growth of an average of NT$14.5bn per month in the past six months, Sitca data show.
The sudden surge in Covid-19 cases in mid-May also prompted Taiwanese regulators to adopt emergency remote fund sales rules to encourage distributors to sell products via digital platforms, and urge managers to postpone initial public offerings for their new fund products and prevent further spreading of the virus.
The emergency measures appear to have had more impact on mutual funds sales than ETFs because investors in ETFs tend to be younger and more digital savvy, and so depend less on in-person fund buying, as is the case with mutual funds.
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