Understand active and passive balanced ETFs in one go

        With the continuous development of the financial market and the increasing diversity of investment tools, the Financial Supervisory Commission has actively promoted Taiwan to become an Asian asset management center. On December 25, 2024, it announced the amendment of multiple regulations such as the "Securities Investment Trust Fund Management Measures", opening up securities investment trust enterprises to issue active ETFs and passive balanced ETFs, providing investors with more possibilities for asset allocation. The two newly opened ETF products follow the standards of index stock funds in terms of listing application procedures, information disclosure, trading methods, liquidity providers' market manipulation, and subscription and repurchase operations. They are the same as the current ETFs, but each has its own characteristics. This issue's "Finance Column" will provide an in-depth introduction for investors' reference.

        The Future Stars of Active ETFs

                Active ETF is a fund product in which fund managers actively manage investment portfolios based on specific investment objectives and strategies. Its purpose is to achieve investment performance beyond benchmark indices after deducting related fees. Compared with traditional ETFs, active ETFs are more flexible, and managers can adjust investment targets and asset allocation based on market changes. According to asset management company BlackRock, as of 2024, there are over 2300 active ETFs worldwide with managed funds exceeding USD 900 billion. More than 40% of newly issued ETFs in 2024 belong to active ETFs, while in 2021, the proportion of active ETFs was only about 1/4. BlackRock estimates that the global active ETF size will reach USD 4 trillion by 2030.

        9 Characteristics of Active ETFs

        1. High information transparency: Unlike other funds, active ETFs disclose daily holdings details of their investment portfolios, making it easier for investors to grasp the flow and allocation of funds.

        2. Clear product identification: The fund name contains the word "active", and the first two characters of its securities abbreviation will also be displayed as "active" to facilitate investor identification. In addition, stock codes will add "A" after the number, while bond codes will add "D".

        3. Flexible operation mode: Active ETFs provide greater operational space and are not limited by the constant stock composition of specific indices, allowing fund managers to operate according to market conditions. This also tests their ability to select stocks and timing, and performance cannot be guaranteed to surpass the overall market.

        4. Performance indicators can be set: Active ETFs can set performance indicators. If the fund has performance indicators, the prospectus must fully disclose relevant information, and monthly report the fund's net asset value and cumulative rise and fall data of performance indicators on the public information observation station as a reference for investor evaluation.

        5. High return potential: Fund managers have the opportunity to seize market volatility through in-depth research and flexible strategies, achieving returns that exceed market averages, but investors also need to bear relative risks.

        6. Strong market adaptability: Faced with rapidly changing markets, active ETFs can quickly adjust their investment portfolios and reduce downside risks in response to macroeconomic or industry trends.

        7. Management fee compromise: Due to the need to pay professional service fees for fund managers, the management fees for active ETFs are usually higher than passive ETFs but lower than traditional active funds.

        8. Notes: Fund portfolio information will be released after the settlement of the fund's net asset value on each business day. However, based on the active operation characteristics of ETFs, fund managers may make portfolio adjustments on the next business day. Therefore, the intraday investment portfolio may not be the same as the one published the previous day.

        9. Suitable investment targets: Investors who have a certain judgment on market trends, are willing to take on higher risks to pursue excess returns, or investors who hope to flexibly respond to market changes and trust the professional abilities of fund managers.

        Passive balanced ETF achieves both balanced allocation and meets demand

        The passive multi asset ETF currently open by the Financial Supervisory Commission is limited to fixed ratio stock bond balanced products. Therefore, this article introduces it as a passive balanced ETF, which is a fund product that combines stock and bond assets, aiming to provide stable asset allocation and long-term returns. These types of ETFs typically track specific stock bond balance indices, such as a combination of 60% stocks and 40% bonds, providing investors with a simple and low-cost diversified investment approach. Simply put, passive balanced ETFs are an extension of current passive ETFs, tracking indices that cover both stocks and bonds, and have stock and bond allocation ratios specified in the index compilation rules. Investors can refer to the daily investment portfolio content disclosed in the prospectus and investment trust official website to understand their stock and bond asset allocation rules and actual situations.

        The Four Characteristics of Passive Balanced ETFs

        1. Diversified asset allocation: Through the combination of stocks and bonds, passive balanced ETFs can reduce the volatility risk of a single asset and achieve more stable investment returns.

        2. Clear product identification: The index name contains the word "balance", while the first two characters of the securities abbreviation are displayed as "balance", making it convenient for investors to quickly identify the product type. The stock code will add a 'T' after the number.

        3. Risk diversification: A mixed investment portfolio of stocks and bonds can effectively reduce the volatility of a single asset, especially when the stock market performs poorly, bonds can provide a certain degree of defense.

        4. Suitable investment targets: conservative investors who pursue stable returns and have low tolerance for market fluctuations, or those who hope to achieve long-term asset allocation goals at lower costs.

        The most successful investment portfolio: striking a balance between passive and active strategies based on individual risk-taking willingness

        The launch of active ETFs and passive balanced ETFs has injected new vitality into Taiwan's ETF market. These two types of products have their own characteristics and can meet the needs of different investors. It is recommended to choose the most suitable ETF product based on one's own investment goals, risk tolerance, and market views. When choosing an active ETF, one should carefully study the historical performance and professional abilities of the fund manager, and understand the investment strategy and risks of the fund; When choosing a passive balanced ETF, it is necessary to pay attention to whether the tracked index components and their asset allocation ratios meet one's investment needs. In addition, fully reading the prospectus and related documents to understand product characteristics and potential risks is also an important step in reducing investment risks.

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        *Image source: Freepik

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