A growing number of institutional investors at home and abroad have shifted their attention to index-investing strategies as new indexes comprised of fundamentally sound companies are introduced on the market, according to analysts.
Pension funds in particular have become more interested in index investing strategies and adopted such methods, analysts said.
Index investing is a kind of passive investment strategy that allows investors to generate gains based on the performance of the indexes they have chosen.
These investments tend to be relatively stable compared with active investment strategies -- which generally involve frequent trading and a focus on short-term profits -- because they are usually less volatile and limit potential losses, analysts said.
According to market statistics, 15 percent of pension funds in the global market use passive index investing strategies.
The Bureau of Labor Funds, which manages Taiwan's labor funds such as the Labor Pension Fund, the Labor Retirement Fund and the Labor Insurance Fund, has adopted index investing for years, according to bureau deputy director Liu Li-ju (???).
Liu said her bureau has allocated about NT$80 billion (US$2.54 billion) to various index investments.
One of them tracks the Taiwan Stock Exchange's TWSE RAFI Taiwan Employment Creation 99 Index, which selects and weights the fund's constituents based on "number of employees," and another tracks the TWSE RAFI Taiwan High Compensation 100 Index, which selects constituents based on salaries paid.
Liu said that because the bureau has faced a manpower shortage at the same time as the funds it manages have grown very rapidly, it has had to track good indexes to seek decent yields.
Nan Shan Life Insurance (????) Vice President Yang Chi-yuan (???) said the Financial Supervisory Commission's efforts to push for more exchange traded funds (ETFs) in Taiwan offer investors who want to adopt index investing strategies more good investment options.
Yang said he expects that a growing number of life insurers that are sitting on large sums of funds will park their money in ETFs.
Lin Chung-yi (???), a manager with Yuanta Securities Investment Trust Co., agreed. He said that after the Taiwan Yuanta/P-shares Taiwan Top 50 ETF became the first ever ETF to be launched in Taiwan in 2003, institutional investors have accounted for 70-80 percent of the ETF's market capitalization.
The ETF tracks the FTSE TWSE Taiwan 50 Index, which is comprised of the 50 largest cap stocks in Taiwan, including Taiwan Semiconductor Manufacturing Co. (TSMC,???), the most heavily weighted stock in the local market.
Source: Focus Taiwan News Channel