From Asset Allocation to Income Strategies: The Global Wave of ETF Innovation and the Next Step for Taiwan’s Market
Taiwan’s ETF market has demonstrated remarkable growth momentum. Over the past several years, ETFs have become an important instrument for domestic investors to participate in the capital markets. Market size has expanded rapidly, while the number of beneficiaries has repeatedly reached new highs. Following the official launch of active ETFs and passive balanced ETFs in 2025, market response has been enthusiastic, once again underscoring Taiwanese investors’ strong acceptance of innovative ETF products and marking a new stage of development for Taiwan’s ETF market.
As investor demand becomes increasingly diversified, ETFs are no longer merely instruments that provide exposure to a single market. They are gradually evolving into an important platform for asset allocation, risk management, and income planning. Looking at recent developments in international markets, mature ETF markets such as the United States, Canada, and Korea have continued to introduce various innovative products. Among them, ETF of ETFs, active multi-asset and balanced ETFs, and Covered Call ETFs have attracted particular market attention, reflecting important future directions for the global ETF industry.
ETFs Are Evolving from Single Investment Tools into Asset Allocation Platforms
In the early stages of ETF development, the primary function of ETFs was to provide investors with a low-cost means of tracking specific indices. However, as markets have matured, investor needs have evolved from simply “buying the market” to determining “how to allocate across markets.”
One of the most significant changes in the global asset management industry in recent years has been the transformation of portfolio construction. In the past, investors had to purchase equity funds, bond funds, commodity funds, or real estate funds separately in order to complete an asset allocation strategy. Today, through a single ETF, investors can achieve cross-asset exposure.
This trend has also led ETFs to evolve from investment instruments into portfolio platforms. The core concept behind many innovative products in international markets is precisely how to help investors complete asset allocation and risk management in a more cost-efficient and operationally efficient manner.
ETF of ETFs: Achieving Global Asset Allocation Through a Single ETF
Against this backdrop, ETF of ETFs have developed rapidly in recent years. The concept of an ETF of ETFs is straightforward: the ETF invests in other ETFs as underlying holdings and achieves asset allocation through a combination of different ETFs. For example, a single product may simultaneously hold global equity ETFs, investment-grade bond ETFs, non-investment-grade bond ETFs, gold ETFs, and REIT ETFs, allowing investors to obtain diversified asset exposure by holding only one product.
Following the increase in global market volatility, the importance of these products has further increased. As different asset classes often perform differently across economic cycles, diversified allocation can help reduce portfolio volatility. As a result, ETF of ETFs have gradually become important investment vehicles for pension assets and long-term wealth management funds.
From an industry development perspective, ETF of ETFs also enhance asset management efficiency. Compared with directly holding hundreds of individual stocks or bonds, fund managers can achieve global asset allocation by holding several ETFs with different strategies, thereby significantly reducing trading and management costs.
It is worth noting that ETF of ETFs are no longer confined to traditional passive investment structures. In recent years, major international asset managers have begun to combine active management strategies with the ETF-of-ETFs structure. For example, managers may actively adjust the weightings of underlying ETFs in response to changes in interest rates, inflation, and economic conditions. This shows that ETF of ETFs are gradually becoming an important vehicle for integrating active and passive investment approaches. As investor demand for one-stop asset allocation solutions continues to rise, ETF of ETFs still have considerable room for future development.
Active Multi-Asset and Balanced ETFs: From Product Selection to Portfolio Management
Another trend worth noting is the rapid rise of active multi-asset ETFs. Traditional investment approaches usually classify assets primarily into equities or bonds. However, in recent years, market conditions have changed rapidly, and a single asset class often struggles to balance return generation with risk control. As a result, more investors are placing greater emphasis on cross-asset allocation.
In international markets, multi-asset ETFs have gradually evolved from passive allocation products into actively managed strategies. As of 2025, approximately two-thirds of global multi-asset ETFs adopted active management structures, and their assets under management accounted for more than half of the overall multi-asset ETF market. Compared with traditional balanced funds, the greatest advantage of active multi-asset ETFs lies in their combination of ETF trading convenience and active management flexibility.
When market conditions change, fund managers can adjust exposures to equities, bonds, commodities, and other asset classes in a timely manner. For example, during periods of rising inflation, managers may increase allocations to commodities and inflation-linked bonds. When economic momentum weakens, they may increase exposure to fixed income assets in order to enhance portfolio resilience.
In recent years, the investment scope of multi-asset ETFs has also continued to expand. In addition to traditional equities and bonds, some products have begun to include REITs, commodities, private credit, digital assets, and other asset classes, enabling investors to access a broader range of investment opportunities through a single product.
This development reflects a shift in global investor demand. In the past, investors focused on which individual stock or category of bonds to buy. Today, they place greater emphasis on how to construct a portfolio capable of navigating economic cycles. Active multi-asset ETFs are an important innovative product designed to respond to this demand.
Covered Call ETFs: Income Strategies Become a Market Focus
If ETF of ETFs represent innovation in asset allocation, and multi-asset ETFs represent innovation in management models, then Covered Call ETFs represent innovation in income strategies. In recent years, amid a global high-interest-rate environment, investor demand for stable cash flow has increased significantly, driving the rapid development of options-based ETFs. Among these products, Covered Call ETFs have attracted the most market attention.
The core concept of a covered call strategy is to hold underlying equities or ETFs while simultaneously selling call options to collect option premiums. Through premium income, the strategy can increase the sources of portfolio income, making it particularly attractive to retirees and income-oriented investors.
Looking at global development trends, Covered Call ETFs have gradually evolved from niche products in their early stage into mainstream investment products. After the United States launched its first related ETF in 2007, markets including Canada, Korea, Japan, Australia, and Hong Kong followed suit. The overall market size has now exceeded USD 100 billion.
In recent years, further strategy innovations have emerged. For example, some products have shifted from the traditional approach of selling options on a monthly basis to weekly strategies or even 0DTE strategies, which involve options expiring on the same day, with the aim of increasing premium income and enhancing operational flexibility. The Korean market has also introduced Covered Call ETFs with weekly rollovers, showing that product design continues to evolve. Meanwhile, the number of actively managed Covered Call ETFs has also been increasing. In the United States, for example, JEPI combines equity investment with an options-based income strategy and has become one of the most closely watched income-oriented ETFs globally in recent years.
These developments show that innovation in the ETF market is no longer limited to tracking new indices or new industries. Instead, ETF issuers are increasingly applying derivatives and strategy-based management techniques to create investment products with different risk-return characteristics.
Aligning with International Markets and Continuing to Monitor ETF Innovation Trends
Reviewing the development history of the global ETF industry, market growth has often been accompanied by innovation in product types and investment strategies. From early equity ETFs and bond ETFs to thematic ETFs, ESG ETFs, active ETFs, and, more recently, multi-asset ETFs, ETF of ETFs, and options-based ETFs in international markets, the ETF industry has continued to respond to investors’ diverse needs for asset allocation, risk management, income sources, and investment efficiency through product design and the evolution of investment strategies.
From the perspective of international trends, products such as ETF of ETFs, active multi-asset and balanced ETFs, and Covered Call ETFs involve different aspects, including fund-of-funds structures, cross-asset allocation, active management, the use of options strategies, and income-oriented product design. Their development experience may serve as an important reference for Taiwan in observing international asset management trends, product design logic, risk control mechanisms, and investor protection measures. However, whether such innovative products are suitable for introduction into Taiwan’s market still requires comprehensive consideration of factors such as the domestic regulatory framework, market maturity, investor understanding, the development of the derivatives market, liquidity conditions, and risk disclosure mechanisms.
As Taiwan’s competent authority actively promotes the Asia Asset Management Center policy, building an internationally competitive asset management market has become an important objective of Taiwan’s financial development. In this context, promoting the diversification of financial products is also one of the key measures.
Taiwan’s ETF market has developed for more than 20 years. Product types have continued to diversify in response to changes in the market environment and investor demand, covering both domestic and foreign component securities. For ETFs with domestic component securities, product themes range from market-cap-weighted ETFs and sector ETFs, such as semiconductors and financials, to various thematic products, such as artificial intelligence and ESG, as well as smart beta strategies, including low volatility and high dividend strategies. ETFs with foreign component securities offer an even broader range of themes, including exposure to different countries, real estate, technology, bonds, AI, communications, electric vehicles, biotechnology, and other sectors, making it more convenient for investors to allocate assets across global markets. The scope of underlying assets has also gradually expanded from equities to bonds, commodities, futures, cross-border ETFs, and other assets and markets.
Following the official launch of active ETFs and passive balanced ETFs in 2025, Taiwan’s ETF product landscape has further expanded. This symbolizes that Taiwan’s ETF market is gradually moving from traditional passive single-asset products toward a new stage that combines active management, cross-asset allocation, and products with different risk-return profiles. It also reflects Taiwan’s continued alignment with international markets and has encouraged more domestic and international issuers to participate in Taiwan’s market. Looking back at past development experience, the key to the sustained growth of Taiwan’s ETF market has been continuous product innovation, enabling the market to respond to investor needs at different stages and provide investors with a more comprehensive range of choices.
To continue strengthening the depth and breadth of Taiwan’s ETF market, the Taiwan Stock Exchange has, since 2025, been tracking product types in mature international markets and observing ETF developments in the United States and Asia-Pacific markets, with a focus on innovative products such as ETF of ETFs, active multi-asset and balanced ETFs, and Covered Call ETFs. Domestic securities investment trust enterprises have also expressed interest in issuing such products.
The TWSE will actively communicate with the competent authority and closely monitor the appropriate timing for product launches. As active ETFs and other products continue to gain investor favor, the TWSE looks forward to using the above three product categories as strategic reserves for the next stage of market development. By enriching investors’ product choices and broadening the range of diversified investment options, the TWSE aims to support the competent authority’s policy objective of developing Taiwan into an Asia Asset Management Center.