Lin Tzong-yeong (林宗勇), chair of Securities and Futures Commis-sion (SFC, 證期會), yesterday said he strongly backed moves by six mutual fund firms to establish "value funds," or investment funds that focus on traditional firms with low price-to-book ratios.
Combined, the six funds are permitted to manage as much as NT$54 billion in equities.
But the government is expected to be their biggest customer, as the four government insurance and pension funds may purchase a position worth as much as NT$30 billion from the six funds.
Lin said the SFC would never force mutual funds into launching "asset replacement funds" (資產重置型基金) -- the local lingo for value funds. But fund companies that are not capable of managing funds with this type of investment focus should "remain silent" on the issue, Lin said.
The six investment companies include Jardine Fleming Securities Investment Trust (怡富投信), which applied with the SFC on June 28 to launch the Jardine Fleming Balanced Fund. The fund is required to invest a minimum of NT$2 billion and has a ceiling of NT$10 billion.
The other companies include Taiwan SITC (
Lin said the four government funds would buy a market position worth at least NT$30 billion, regardless of how much investment the six value funds attract from outside sources.
According to the SFC, the four government funds were permitted to invest as much as NT$422.5 billion (US$14 billion) in the stock market as of the end of June.
Through July 6, NT$241.1 billion had been committed, or 7.29 percent of the four funds' NT$3.3 trillion in assets. That leaves NT$181.4 billion available for stock market investment.
Lin said the stable rate of return that the value funds offer made them suitable for the government's long-term investment goals.
Although some value funds have dropped below par value, Lin noted that some high-tech funds have performed even worse. He said the government expected to get a rate of return higher than a two-year time deposit.
Analysts say when the government decides to buy through the six funds, the symbolism of the act would likely have more of an effect on the market than the act itself.
"The NT$30 billion in funds is just a fraction of the stock market's NT$13 trillion capitalization," said K.P. Liu (
"The actual effect of these value funds is therefore quite limited. However, when these government funds decide to invest, it normally means that the market is getting close to its trough."
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