While global stock and bond markets fell, dampening growth in Taiwan’s mutual fund market in 2022, its exchange-traded fund (ETF) assets bucked the trend by continuing to increase. Total assets reached NT$2.3 trillion (US$74.9 billion) in 2022, while the number of ETF listings reached a new high of 236.

The growth momentum of Taiwan’s ETF market has remained strong in 2023 so far. As of April, ETF assets reached NT$2.7 trillion with 6.4 million investors. ETFs account for 51.9% of Taiwan’s total mutual fund assets, compared to 30% in Korea, 20% in Hong Kong and less than 1% in China. Retail investors overwhelmingly dominate Taiwan’s ETF market at 99.7%, unlike its regional counterparts, where institutions take the lion’s share of assets.

Apart from the simplicity of trading and the low fees offered, a surge in interest from young investors has been a key factor behind product innovation and growth of ETFs, partly driven by an increase in key opinion leaders and influencers recommending ETFs for long-term investments. Many ETFs pay dividends, and influencers promote them as savings plans that help investors invest regularly while earning high dividends. In fact, Taiwanese investors’ search for dividend payouts has led to the continued popularity of high-dividend ETFs.

Taiwan stock ETFs increased their assets under management by 60.4% year-on-year to NT$297.5 billion, reaching 5.7 million investors in 2022. However, bond ETFs with relatively stable returns and low volatility have also come under the spotlight recently, due to the demand for safe-haven assets. Of the NT$2.7 trillion in total ETF assets at the end of April, bond ETFs accounted for NT$1.4 trillion, up NT$239 billion in the first four months of this year and officially surpassing stock ETFs.

Meanwhile, environmental, social, and governance (ESG) investing has caught on in Taiwan, and ETFs that incorporate ESG into their screening criteria are more likely to gain investors' attention. The National Development Council recently set out its 2050 net-zero transition plan this year, and stock ETFs combining low-carbon stocks as well as themes such as corporate sustainability and profitability are becoming key investment trends, giving asset managers the opportunity to develop related ESG ETFs.

In addition, the Financial Supervisory Commission has announced the development of the ESG assessment framework, which is expected to be completed this year. This could pave the way for the development of products based on sustainability indexes, such as carbon emissions reduction or labor indexes, which will undoubtedly bring new ETF opportunities to asset managers.

“Cerulli expects high-dividend and bond ETFs to remain popular in Taiwan,” said Joanne Peng, research analyst with Cerulli. “In the long run, ETF development is likely to be influenced by government policies, and government support for low-carbon goals should drive the rollout of more low-carbon ESG ETFs in the market.”