Taiwan's exchange traded fund (ETF) industry set another milestone following the launch of the Fubon Vix ETF, the first fund in Asia-ex Japan that offers Taiwanese investors direct participation in volatility investment, listed in December by Fubon Securities Investment Trust Co (Fubon SITC).

The fund will invest at least 70% of assets on the S&P 500 Vix Short-term Futures Index ER Index, which tracks front-month Vix futures on the Chicago Board Options Exchange (CBOE). According to Fubon, Vix futures could be served as a more effective downside hedge than traditional instruments, like treasuries which fell 0.38% along with the 2.91% drop in the S&P 500 from October 24 to November 3. During the same period, the Vix futures index rose as much as 26.53%, Fubon noted.

"In 2016 the daily volume traded for Vix ETF products on the New York Stock Exchange at one point exceeded 7% of the total, further highlighting the growing importance of such products in the modern era of investing," a Fubon spokesperson said, adding that the S&P 500 Vix short-term futures index, the benchmark of Fubon Vix, had comfortably outperformed gold and treasuries in the heated run-up to the US presidential election.

The new fund listed on the Taiwanese Stock Exchange (TWSE) on December 30 and was the 27th ETF listed on the exchange in 2016.

"The rapid growth of ETF business in Taiwan could be testified by the rapid growth in the percentage of its overall trading volume in the local bourse," said the Fubon official.

ETF shares turnover in December totalled NT$128bn (US$4.04bn), or 9.12% of the overall securities trade, which compares with a monthly average of 7.26% for 2015 and 8.93% for the first 11 months of 2016, according to TWSE data.

Fubon has been aggressive in developing exchange-traded products that offer overseas exposure, the spokesperson said, and the company has more ETFs in the pipeline, including more diverse markets and asset classes.

Smart beta in particular remains a hot topic in Taiwan. In a recent interview Kevin Niu, head of equity derivatives at KGI in Taiwan said that many securities houses and asset managers are looking into this fast-growing segment of the market, although it will take some time until 'proper indices are developed' and products tracking those are launched.

Smart beta indices and related products will draw the attention of many Taiwanese investors, especially ones who pursue goals of both reducing risks and gaining alpha, considering the volatility of the market and the prospect of the advancement of Taiwanese aging society, according to Takashi Shibuya, a director within the trust assets planning division at Mitsubishi UFJ Trust and Banking (MUTB).

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