＜中文版＞
The origin of ETFs (exchange traded funds) can be traced back to the SPDR S&P 500 ETF (trading ticker SPY) issued in 1993. Early ETF products were passive index ETFs, with ETF Funds tracking the performance of underlying indices, allowing investors to earn various market returns. Common underlying indices include stock price indices, bond indices, multi asset indices, factor indices, and industry indices. Active ETFs, on the other hand, have only lately emerged, so their market size remains small. According to data from Morningstar, as of the end of 2023, the asset size of active ETFs in the United States was USD 530 billion, accounting for only 7% of the asset size of US ETFs and 4% of the active fund size. Although the current number and asset management scale of active ETFs remain limited, their growth rate has been rapid in recent years. BlackRock predicts that the asset size of active ETFs would reach USD 4 trillion by 2030.
The biggest difference between active ETFs and passive ETFs lies in their investment strategies. As mentioned earlier, passive ETFs track the performance of underlying indices, with the goal of achieving market returns. Active ETFs and active funds, on the other hand, employ an investment management strategy in which fund managers select investment targets to outperform market returns and earn excess returns. The characteristics of active management include:
1. Fund managers with superior stock selection or timing abilities have the opportunity to obtain higher returns than the market return.
2. To leverage the benefit of impact investing, fund managers actively select stocks to increase market competition. Companies with poor business or ESG performance may face pressure, and if no improvements are made in the future, their stocks may be devalued or sold off.
3. Currently, regulatory-approved active ETFs are completely transparent in their information disclosure. Like current passive ETFs, their actual investment portfolios must be declared to the market on a daily basis to protect investors’ rights and interests.
Before investing in actively managed ETFs, investors should carefully consider the following factors:
1. According to the data from Morningstar, the average management fee for active ETFs is 0.65%, which is much higher than that of passive ETFs but still 36% lower than that of active funds, indicating that the management fee for active ETFs is close to the management fee of share class for institutional investors.
2. The fund manager’s active stock transactions will result in higher fund turnover and trading costs compared to those of passive ETFs.
3. Selecting active ETFs has become increasingly challenging for investors. For passive ETFs, choosing the right market ensures similar performance among index ETFs, regardless of the investment trust company. For active ETFs, however, investors must not only choose the right market but also select the investment trust company and rely on the managers’ stock selection and timing abilities. Otherwise, their performances may lag behind market returns. According to Standard & Poor's research over the past 20 years, as much as 87.98% of U.S. stock funds underperformed the S&P 500 Index ETF over the past 15 years.
The future development of active ETF products in Taiwan should focus on filling the gap in the existing passive ETF market and meeting the needs of investors. To address current market gaps, Taiwan can refer to the experiences of foreign ETF markets. For example, active ETFs with option trading strategies, diversified asset allocation, targeted risk strategies, or artificial intelligence to increase returns have flourished in the U.S. ETF market. Among them, the JPMorgan Equity Premium Income ETF, which combines active stock selection and call option selling to boost dividends, is particularly popular with investors, with an asset size reaching USD 38 billion in less than five years. Although Taiwan has not yet approved the aforementioned categories of active ETFs, it is recommended that as the market matures, worldwide trends be considered and new types of active ETFs be permitted. In terms of meeting investor needs, Morningstar stated that some active funds have been transformed into active ETFs with lower management fees to compete in the market. Taiwanese investors are particularly pleased with the dividend pattern and investment performance of several active funds. If these funds can be transformed into active ETFs with reduced management fees, they will likely become highly attractive and beneficial to investors.
We are glad to see the opening of the Taiwan market for active ETFs and look forward to their future development, which will provide investors with more investment choices and promote healthy competition in the market.