Sat, Mar 11, 2017 - Page 12 News List

High RR-rated products return to Taiwan market

By Ted Chen  /  Staff reporter

Investment fund products with higher risk-return (RR) ratings have returned to the Taiwanese market following a decade-long lull, as financial institutions turn bullish over those products’ outlook in anticipation of the approaching US Federal Reserve interest rate hike cycle.

Of the 11 growth-oriented investment products with an exchange-traded fund (ETF) component that have been introduced to Taiwan since 2005, six were launched by financial institutions in the past six months, Prudential Financial Securities Investment Trust Enterprise Co (保德信投信) said yesterday.

At least two investment funds with an RR4 rating would be made available to local investors this year, marking a return of this sort of instrument since the Yuanta Global ETFs Growth Fund was launched in September 2006, Prudential said.

Cathay Securities Investment Consulting Co Ltd (國泰投顧) launched its RR4 fund on Tuesday, while Prudential’s offering is to begin operations early next month, the companies said.

Financial firms have begun favoring RR4 products over RR3, as history shows that equities tend to generate about 8 percent higher returns than bonds when global economic growth exceeds 3 percent, Prudential fund manager Nick Ouyang (歐陽渭棠) said at a press conference in Taipei.

Global economic growth is projected to reach 3.4 percent this year, compared with 3.1 percent last year, he said.

The growth would be tangible — as opposed to past liquidity-driven rallies — due to central banks’ easing measures, Ouyang said.

Growth in corporate earnings is expected to reach 12.5 percent this year, compared with last year’s 2.5 percent and a 3.7 percent decline in 2015, Ouyang said, citing data from the MSCI World Index.

In addition, the purchasing managers’ index for manufacturers and the consumer confidence index both began to rise toward the end of last year, signaling growth momentum, he said.

As a result, investors are advised to adopt more proactive strategies and take more risks to tap into gains in equities markets as bonds lose their luster at the start of the US interest rate hike cycle, he said.

The RR rating system, devised by the Bankers Association of the Republic of China, ranges from RR1 to RR5, with a higher rating denoting higher risk of investment in developed market equities susceptible to volatility spikes.

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