Guide to New Financial Products

The FSC Has Approved the Listing of Active ETFs and Passive Multi-Asset ETFs in Taiwan in 2024.

On December 25, 2024, the Financial Supervisory Commission of Taiwan (the FSC) approved the listing of active exchange-traded funds (Active ETFs) and lifted the restrictions on passive index equity funds to include both stocks and bonds (Passive Multi-Asset ETFs). These regulatory changes are expected to further diversify the Taiwan ETF market, better meet the needs of various investors, and attract international asset management firms to participate in the market.

Active ETFs

1.Definition

  • An exchange-traded fund (ETF) actively managed by professional portfolio managers.
  • Designed to outperform a benchmark or achieve specific investment objectives.

2.Key Characteristics

  1. Transparency:
    • Full investment portfolio disclosed daily on the asset management company's website.
    • Portfolio details available after net asset value (NAV) calculation.
  2. Flexibility
    • No mandatory benchmark requirement.
    • Fund managers can actively create and adjust investment portfolios.
    • Strategic investment approaches.
  3. Product Identification:
    • Equity Active ETFs: "A" as the sixth code in ticker.
    • Bond Active ETFs: "D" as the sixth code in ticker.

3.Investment Scope

  1. Given that it is the first time to introduce active ETFs in Taiwan, the initial launch will focus on:
    • Active equity ETFs
    • Active bond ETFs
  2. A minimum of 70% investment in equities or bonds.
  3. Must comply with securities investment trust contract.

4.Trading Methods

  1. Similar to passive ETFs :
    • General trading
    • Odd-lot trading (during and after trading hours)
    • Dollar Cost Averaging (DCA) plan
  2. Can be used for margin trading, borrowing, and hedging transactions.

Passive Multi-Asset ETFs

1.Definition

  • Exchange-traded fund tracking an index composed of multiple asset classes.
  • Provides balanced allocation between stocks and bonds.
  • Designed for risk diversification.

2.Key Characteristics

  1. Asset Composition:
    • Must include both equities and bonds.
    • No leveraged or inverse ETFs allowed.
  2. "T" as the sixth code in ticker.

3.Allocation Strategy

  1. Fixed or conditional equity-to-debt ratio.
  2. Index compilation rules must specify:
    • Fixed allocation ratios, or
    • Conditional allocation criteria based on market indicators.

4.Trading Methods

  1. Similar to passive ETFs :
    • General trading
    • Odd-lot trading (during and after trading hours)
    • Dollar Cost Averaging (DCA) plan

5.Investment Benefits

  1. One-stop asset allocation solution
  2. Minimizes impact of individual asset class fluctuations
  3. Attractive to:
    • Prudent investors
    • Retirement-focused individuals
    • Those seeking diversification

6.Regulatory Approach

  • At present, the financial regulator may initially introduce balanced passive ETFs that include both equities and bonds as index constituents.
  • Potential future expansion of multi-asset ETF types.