ETF provider of the year: Yuanta SITC

Asia Risk Awards 2019

Julian Liu, Yuanta SITC

Global buy-side firms are looking to integrate disruptive technologies in their processes, from investment analytics and management to product distribution. The aim is to boost operational efficiency and to stay competitive among peers.

Exhange-traded fund (ETF) specialist Yuanta Securities Investment Trust Company (SITC) saw that coming and set about preparing for the scenario. The Taipei-based money manager, with $17.5 billion assets under management (AUM) in August, commanded 16% of total domestic market share and the company’s senior management realised it couldn’t stand still amid the onslaught of technology disruptors.

Last year in February, the firm launched a revamp in the organisational structure with an aim to streamline internal processes and boost productivity by integrating technologies such as machine learning and automation tools.

“Our goal is to transit the company into a better fit for what we call the ETF 2.0 era and continue to be ahead of our competitors,” says Julian Liu, chairman at Yuanta SITC.

It isn’t stopping with the revamp, either. The firm wants to boost its data analytics capabilities and expand its regional footprint through partnerships in order to tap opportunities in the other hubs in the region.

Liu says the first generation of the ETF market began in 2003 when Yuanta was among the first movers in Taiwan to launch index funds. The next generation – ETF 2.0 – has begun with asset managers looking to shape the supply chain of fund industry under a rising reliance on technology.

To succeed in a changing tide, Liu singles out two important elements in his “one-team” restructuring theory.

Prior to the changes, the firm was organised in active and passive teams, and principally separated by investment style and strategy, traditional and alternative; equity and bond; and domestic and international. “We broke the walls between investment teams, which are traditionally thought to be differing or even competing, to construct what we call ‘one team’, set up to provide more comprehensive investment advice,” Liu says.

Artificial intelligence technology, including quantitative and machine-learning capability, would gradually take a bigger role in the process as it would help automate part of the repetitive and data-heavy tasks. Therefore, automation would leave staff time to engage in tasks that require a high degree of human input, he says.

Our goal is to transit the company into a better fit for what we call the ETF 2.0 era and continue to be ahead of our competitors

Julian Liu, Yuanta SITC

As a result of the rejig, Yuanta would now have more of an investment advisory and solution platform position rather than just being a fund provider, he says. By providing customised portfolio strategies, the firm’s revenue model, which previously consisted of only commission and management fees, now includes advisory and performance fees as well.

“We were very reluctant to do this so radically, because it is far from easy. But, now we aren’t willing to fall back,” says Liu.

Over the past three years, Taiwan’s active fund managers rolled out ETFs that tracked a similar set of indexes. The crowding put the pressure on pricing, especially on fixed-income ETFs. Some competitors dropped fees to less than 10 basis points of total assets, while Yuanta charges between 10bp and 20bp.

Amid this backdrop, differentiation was needed. “Otherwise, our legacy and market share would have been ‘heavily’ diluted. We had to be ahead of other firms to enter the next era and to prepare ourselves to embrace and adapt to technologies.”

He believes that innovation and customisation can only be achieved with a single chief investment officer heading an aligned team.

“If the teams remained fragmented, our competence to deliver a platform would always be confined because resources are spent less efficiently and competition [would be] found everywhere, both internally and externally,” he says.

After restructuring, Liu says the firm managed to break the mentality of internal competition and promote higher transparency and information-sharing: “This made us more prone to collaborate and help avoid allocating resources in an overlapping manner.”

Evaluating the reform success, Liu says, so far the results have been rewarding. Last year, the firm was among the most profitable asset managers and maintained a low operating cost. The firm also ranked first in terms of AUM and profit after tax generated by each staff.

The effort has also improved Yuanta’s ability to respond faster and communicate better with clients, says an executive at a Taiwan-based bank. The bank takes Yuanta pre- and post-trade services.

“The biggest differentiator is their constant efforts and a forward-thinking mindset in infrastructure,” the official says. “The improvements come from internal governance on operation and risk management to distribution to external parties. The team is highly international under Julian’s leadership and sophisticated in automation, while other fund houses in Taiwan lag behind considerably,” he says.

The next step for Liu and team is to further enhance the data analytics and software support, and expand the product line regionally through different partnerships.

For the data part, the firm has been making more hires from the computer science field where they find candidates with knowledge in machine learning and programme writing.

In terms of product innovation, Yuanta has served as a technical adviser to several ETF markets in the region. In 2018, a partnership between Yuanta and Malaysia’s Kenanga Investors brought the first listing of leverage and inverse product on the Bursa Malaysia.

Eyeing the launch of the MSCI China A-shares inclusion index futures products in Hong Kong, Yuanta is currently working on the first leverage and inverse ETF in Taiwan, tracking the MSCI China A-shares benchmark. This is expected to offer Taiwan-domiciled investors an option to access the mainland market via a product wrapped with futures.