Since ETFs were introduced in Taiwan in 2003, they have gradually become a favored tool for investors in asset allocation. Traditional ETFs typically focus on a single asset class, such as stock or bond ETFs, clearly defining investment targets. As market demands have diversified in recent years, Taiwan officially introduced passive multi-asset ETFs in 2025. The key feature of a passive multi-asset ETF is its built-in concept of asset allocation. Through a fixed ratio of asset allocation split between stocks and bonds, along with an automatic rebalancing mechanism, investors can more easily manage risk and return.
Compared to regular passive ETFs, a passive multi-asset ETF does not track the performance of a single asset class; instead, it encompasses a mix of stocks and bonds, thereby diversifying investment portfolios. Passive multi-asset ETFs, compared to balanced funds that hold both stocks and bonds, offer a number of key advantages. Firstly, the stock-bond ratio is fixed according to index rules. The ratio does not change due to manager discretion, allowing investors to clearly understand the risk characteristics. Secondly, a passive multi-asset ETF retains the features of an ETF, enabling real-time trading on stock exchanges like individual stocks, along with high liquidity and transparency. Furthermore, due to their passive management approach, the expense ratio of passive multi-asset ETFs is typically lower than that of traditional balanced funds, saving costs for long-term investors.
Passive multi-asset ETFs with fixed stock-bond ratios have been available in the Taiwanese market since August, with more new products expected to launch, including passive multi-asset ETFs with conditional stock-bond ratios, thereby widening the diversity of passive multi-asset ETFs. With a single product, ETF investors can benefit from holding a combination of both stocks (for growth potential) and bonds (for defensive features).
From a risk management perspective, passive multi-asset ETFs offer considerable value. Take the 2020 pandemic as an example – U.S. stocks plunged over 30% in just one month. However, government bonds rose due to increasing demand for safe-haven assets, providing a natural buffer for investment portfolios. The negative correlation between stocks and bonds enables multi-asset ETFs to effectively reduce volatility amid a turbulent market, making them ideal for investors with limited risk tolerance, such as those near or already in retirement. More importantly, the built-in automatic rebalancing mechanism in these ETFs sells a portion of stocks during market surges and buys bonds (and vice versa), forming a disciplined “sell high, buy low” investment strategy. In the long run, not only do multi-asset ETFs help control risk, but they also enhance risk-controlled returns, allowing investors to maintain a reasonable asset allocation without having to make frequent adjustments.
At the moment, the development of Taiwan’s multi-asset ETFs is still in its early stages, with regulators having initially approved passive stock and bond portfolios. However, international markets have revealed a wider range of possibilities. For example, the Cambria Global Asset Allocation ETF (GAA) has an allocation of 45% stocks, 45% bonds, and 10% other assets (e.g. real estate, commodities, and gold), with an expense ratio of just 0.37% and no additional parent fund management fee, demonstrating a balance of diversified allocation and low cost. Another example, the Pacer Trendpilot US Large Cap ETF (PTLC), follows a conditional passive strategy. This ETF switches between the S&P 500 Index and U.S. short-term Treasury bonds based on technical trends—leaning towards stocks when the market is strong and shifting to bonds when the market weakens. Although the expense ratio is higher, this ETF offers investors a dynamic adjustment option. The Aptus Collared Investment Opportunity ETF (ACIO) incorporates derivative-based strategies, including buying stocks, selling covered calls, and purchasing index put options. This approach balances upside participation with downside protection, showcasing the innovative potential of combining ETFs with options.
Overall, passive multi-asset ETFs are an effective tool for investors to manage risk in asset allocation. However, although stock-bond allocation can reduce volatility, systemic risk – such as the simultaneous fall of both stock and bond markets in 2022 – cannot be completely eliminated. Investors must maintain an emergency fund in case of unforeseen circumstances. In addition, as the tracking and rebalancing mechanisms involve more complexity, multi-asset ETFs may have slightly higher expense ratios than single-asset ETFs. Investors must use this tool rationally after assessing both costs and risks.