Taiwan FSC imposes new ETF dividend transparency rules

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TAIPEI – Taiwan’s Financial Supervisory Commission (FSC) has introduced new transparency regulations for exchange-traded funds (ETFs), specifically targeting the disclosure of dividend sources. This move comes after mounting concerns over the extensive use of “earnings equalization mechanisms” by ETFs, which can inflate dividend payouts by utilizing investor capital.

The Fuh Hwa Taiwan Technology Dividend Highlight ETF, a popular fund among Taiwanese investors, disclosed that a significant 85.7% of its November payout was attributed to these mechanisms—far above the under 10% reported by other Taiwanese ETFs. The information was released on the Taiwan Stock Exchange’s ETFortune platform.

The FSC’s push for clearer disclosure rules began in September 2023 amidst worries that earnings equalization, which involves using investor capital to supplement dividends, could mislead investors about the true performance of their investments. In response to these concerns, the FSC has been advocating for ETFs to rely more on actual corporate dividends and bond yields rather than investor capital when calculating payouts.

Despite these regulatory changes, Taiwanese investors’ appetite for high-dividend ETFs remains strong. This is evidenced by the more than 20,000 investors who flocked to the Fuh Hwa ETF before its ex-dividend date in October 2023, in anticipation of dividends. The fund itself has seen a meteoric rise since its launch in June 2023, becoming one of Taiwan’s top equity high-dividend ETFs with assets surpassing NT$100 billion within just five months.

Lipper Asia Pacific Research highlighted in July 2023 that although disclosures revealed a large portion of dividends being covered by investor capital, this did not dampen the strong appeal of such funds for Taiwanese investors. Initially offering an attractive monthly dividend rate of 0.67%, the allure of regular income streams continues to draw interest.

The enthusiasm for high-dividend yielding investment options is further reflected in the total assets of Taiwanese high-dividend ETFs reaching NT$745.3 billion (USD1 = TWD31.642) as of November 10, showcasing their popularity even as regulations evolve and market dynamics shift.

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