Q2 2023 Asset Flows: Funds Domiciled in Taiwan

Fixed income reversed the streak in first-quarter 2023 and became more popular than equity funds, and this trend remained for the quarter. Bond funds raked in TWD 175.7 billion in the quarter, growing 9% organically from the previous quarter. Equity funds took in TWD 24.6 billion in the second quarter and edged up 1% quarter on quarter. Inflows returned for allocation funds, collecting a total of TWD 6.4 billion for the quarter.

Investors’ inclination toward home markets continued to be evident in equity funds, with Taiwan large-cap equity funds attracting the largest amount of new assets for each quarter since June 2021. In the second quarter, this category saw TWD 50.7 billion in new assets.

At the Morningstar Category level, 19 out of 49 equity categories recorded positive inflows in the second quarter, while 12 of 24 fixed-income categories recorded net inflows.

Certain equity markets saw divergent flows, with local investors favoring Taiwan large-cap equity but redeeming from small/mid-cap equity funds. China equity funds attracted TWD 6.4 billion in net inflows, while Greater China positions experienced TWD 1.21 billion in net outflows. U.S. large-cap growth equity funds received inflows, while the country's blend equity funds saw outflows. Japan large-cap equity funds, which had experienced net outflows throughout 2022, rebounded with TWD 1.2 billion in net new assets, ranking fifth among the 49 equity groups in the second quarter.

In fixed income, investors continued to pour money into USD bond funds, with TWD 104.9 billion and TWD 60.4 billion flowing into USD corporate and government-bond funds, respectively. However, USD inflation-linked bond funds faced TWD 3.5 billion in redemptions, and high-yield bond funds experienced relatively heavy outflows, with net outflows from USD high-yield bond funds and global high-yield bond funds at TWD 1.6 billion and TWD 1.5 billion, respectively.

In terms of ETFs, inflows for the quarter were led by the Yuanta/P-shares Taiwan Top 50 ETF, with the remaining top five ETFs by flows tracking long-dated U.S. Treasury bonds or credit indexes. Meanwhile, two technology thematic ETFs and two Taiwan large-cap equity ETFs faced outflows and were among the underperformers.

Among open-end funds, two allocation funds managed by Allianz Global Investors were among the funds with the largest inflows. The manager’s Taiwan technology and small/mid-cap equity strategies saw outflows. Yuanta Global Leaders Balanced Fund recorded the largest outflows for two quarters in a row with a capital exodus totaling TWD 8.1 billion for the second quarter.

By brand, the five largest asset managers in Taiwan, namely Yuanta Financial, Cathay Securities Investment Trust, Capital Investment Trust, Fubon Financial, and Chinatrust, have sustained a net inflow momentum for at least seven quarters. With TWD 1.2 trillion under management, Yuanta retains its position as the leading asset manager in the Taiwan-domiciled fund market. Allianz Global Investors struggled, as larger outflows from equity strategies outweighed inflows into its allocation products, resulting in the German manager being among the quarter's laggards.

Fund outflows totaling TWD 22.9 billion hit sustainable funds in second-quarter 2023, reducing total assets in sustainable mandates to TWD 370.2 billion by the end of June. The drop represents a quarterly organic growth of negative 6%, in contrast to the broad market’s positive growth rate of 4%.

Comparing actively and passively managed sustainable funds, passive funds continued to represent the majority in the market, considering the market impact and an outflow. As of June 2023, sustainable index funds manage TWD 304.8 billion, making up 82% of the total assets. Investors pulled TWD 14.5 billion from sustainable index funds, breaking a nine-quarter streak of positive flows. Meanwhile, active sustainable funds see net outflows of TWD 6.7 billion.

Only four out of 44 Taiwan-domiciled sustainable funds and ETFs posted a positive flow for the quarter. They were two equity and two fixed-income strategies. Cathay Global Auto & Elect Vehicles ETF remained the laggard in terms of flows, with a redemption of TWD 11.0 billion for the quarter. After recording inflows for eight consecutive quarters, the market’s largest sustainable fund, Cathay Sustainability High Dividend ETF, saw net redemptions totaling TWD 1.2 billion.