Polaris to launch Taiwan’s first fund of global bond ETFs

Taiwan’s Polaris Securities is preparing to launch what it calls Taiwan’s first fund of global bond ETFs for retail investors, marketing it as a prudent diversification play amid market volatility.

The company, Taiwan’s largest ETF manager with NT$114.5 billion in AUM from 11 ETFs as at the end of September, will IPO its latest product from November 8 to 18. It has a subscription limit of NT$10 billion ($327 million).

The firm argues that a fund of global bond ETFs should appeal to domestic investors challenged by the present investment environment, notably because of low transaction costs, high transparency and active selection of ETFs. The management fee for the product is 1.2%.

By the end of August there were a total of 552 bond ETFs worldwide with various target markets and tenors including developed and emerging markets, sovereign debt, investment grade and high-yield credit, inflation-linked and convertible bonds.

Polaris chief executive Julian Liu believes, in fact, that global bond markets stand to offer unprecedented investment opportunities. “Government intervention in global markets after the financial crisis has brought in more uncertainty, but more funds will flow into bond markets as higher saving rates in the private sector can reduce credit risk,” he notes.

The fund of fund’s portfolio manager-in-waiting, Samuel Yang, says he intends to choose between 20 and 30 ETFs overall. In particular he anticipates opportunities in 2012 to invest in government bonds of countries with lower debt burdens that have undergone a deep correction.

“In the past two months, due to the strong rebound of the US dollar and fund outflow, local-currency dominated bonds in emerging markets have fallen sharply and now show investment value,” Yang points out.

Initially he plans to focus on non-G3 government debt and inflation-linked bonds, which combined will account for more than 30% of the investment portfolio. He says he will also look to short developed government bond ETFs to enhance returns.

According to Taiwanese regulations, the fund of fund’s portfolio must be at least 60% exposed to money-market and bond ETFs to start with, and after six months must be at least 70% invested.

China Trust will be the new fund’s custodian. Polaris currently manages two ETF funds of funds, namely a global ETF prudent FOF and global ETF growth FOF.