Managers in Taiwan expand ESG fund range

Asset management firms operating in the market have expanded their ESG product ranges in 2020 to include fixed income and balanced offerings.

Editor’s note: this article was first published on Fund Selector Asia

Asset management firms in Taiwan have expanded their ESG product ranges in 2020 to include fixed income and balanced offerings, according to a report by Boston-based research firm Cerulli Associates.

The KGI Global ESG Sustainable High Yield Bond Fund and Pinebridge ESG Quantitative Multi-Asset Fund are examples of ESG-integrated funds launched last year.

More ESG-focused funds are expected to come, as the theme is a key priority for managers over the next two years, according to a Cerulli survey of retail asset managers conducted in 2020. Global bonds featured as the top ESG-centric product managers plan to launch during the next two to three years.

While serving as a risk management tool, integrating ESG factors in a fund helps identify low-quality targeted assets, especially for high-yield and emerging market funds where corporate transparency is often an issue for their underlying assets, according to the firm.

Apart from heightened awareness and understanding of the theme, especially among young retail investors, seminars held by banks and managers are other likely contributing factors to demand, it added.

On the other hand, diverse ESG definitions and scoring systems are a primary hurdle to greater acceptance – although the launch of the Taiwan ESG Dashboard by Taiwan Depository & Clearing Corporation last August, with access to the top 400 Taiwan-listed companies’ ESG scores, should help provide fair comparison on targeted investments’ ESG credentials.

Low risk sentiment

Separately, although offshore (or cross-border) funds is the largest segment of Taiwan’s mutual fund industry, with NT$3.4trn in assets, the recovery in AUM was most notable in locally domiciled mutual funds, which received greater flows of NT$243.2bn over the second and third quarters and now total NT$2.4trn.

Most of the flows went into money market funds (NT$169.4bn), followed by bond funds (NT$30.6bn).

There was a similar preference for low-risk instruments among offshore fund categories, with fixed-income funds collecting the most flows of NT$135.4bn over the second and third quarters.

Nevertheless, some retail investors showed willingness to take on risk.

Balanced and equity funds (onshore and offshore combined) attracted positive flows of NT$15.8bn and NT$2.2bn, respectively, in the first nine months of 2020.

“While investors seek stability, the prolonged low-interest-rate environment is prompting them to take on exposure to these asset classes to achieve higher returns,” said Cerulli.

Taiwan Mutual Fund Net New Flows, 2016–3Q 2020 YTD (NT$bn)

20162017201820193Q 2020 YTD
Money market-146.8-68.7-105.9101.1169.4
Money market1.4-5.39.5-7.1-2.2
Source: Cerulli Associates