Financial Supervisory Commission (FSC) Chairman Ding Kung-wha (丁克華) yesterday urged investors to consider adding weighting to exchange-traded fund (ETF) products to weather increasing volatility in international markets.
The instrument offers investors diversification as they track a basket of stocks, commodities futures or entire indices of nations, Ding said, adding that they fluctuate at a narrower band compared with equities.
‘IDEAL OPTION’
Since its introduction 12 years ago, the FTSE TWSE Taiwan 50 Index has recorded an aggregate dividend yield of 130 percent, with an average annualized return on investment of 6.6 percent, making it an ideal option for life insurers, Ding said.
As of the end of last month, domestic financial institutions had launched 46 ETFs, including two tracking commodities, with aggregate turnover reaching NT$797.1 billion (US$24.61 billion).
Of the 46, 14 ETFs track domestic stocks, while 11 track overseas stocks, the commission said. There are also nine inverse and nine leveraged ETFs, two tracking commodities futures and one feeder ETF.
Non-conventional ETFs — such as inverse ETFs — offer investors a chance to reap profits from declines of an underlying benchmark, while leveraged ETFs amplify daily gains or losses. Feeder ETFs allow Taiwanese investors to indirectly invest in an offshore ETF that tracks foreign securities.
Inverse, leveraged and feeder ETFs are relatively new to the public and due to their difference to conventional products, investors should be aware that they have higher risk exposure and are not suitable for long-term holding strategies that prioritize stable returns.
Following the introduction of non-conventional ETFs, the instruments’ turnover has risen from 1.8 percent of the broad market in 2014 to 7.3 percent last year and 9.94 percent as of the end of last month, according to commission statistics.
‘NO CONCERNS’
Separately, Ding said that ASML Holdings NV’s NT$100 billion bid to buy out Taiwanese semiconductor equipment maker Hermes Microvision Inc (HMI, 漢微科) does not raise concerns about the possible exit of the second-highest priced stock on the local bourse and a decline in the TAIEX’s market capitalization.
“Through the proposed angel-fund scheme, it is hoped that Taiwan could cultivate future-sector champions such as HMI,” Ding said.
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