Update: iShares MSCI Taiwan UCITS ETF

Der Aktienmarkt Taiwans ist stark von der IT-Branche geprägt - Chip-Hersteller Taiwan Semiconductor macht dabei gut ein Fünftel des Index aus. Fallende Energiepreise kommen der rohstoffarmen Insel zugute.

Kenneth Lamont 30.01.2015

Rolle im Portfolio

The iShares MSCI Taiwan UCITS ETF provides large and mid-cap exposure to the Taiwanese equity market. Given its individual country focus, this ETF is best utilised as a satellite holding within an already well-diversified portfolio.


Investors in this ETF should be mindful of both single sector and stock concentration. The information technology (IT) sector is heavily represented, with around two thirds of index weighting, and on an individual stock level, TSMC (Taiwan Semiconductor Manufacturing Company) maintains a fifth of total index weight.


Before investing in this fund, investors should also check their portfolios for existing exposure to Taiwan. In a typical broad merging markets index fund, Taiwanese equities would comprise 10-14% of the portfolio, and around 20% of a broad Asian equity fund (as measured by the MSCI Emerging Markets and MSCI Emerging Markets Asia, respectively).


The MSCI Taiwan Index has exhibited a relatively high degree of correlation with the MSCI EM (~85%), STOXX Europe 600 (~75%), and S&P 500 (~70) indices over the past ten years. This implies that this fund will offer marginal diversification benefits when added to core equity holdings within an existing portfolio.


Fundamentale Analyse

Taiwan’s export-based economy, which has experienced positive but weak growth over recent years, is showing signs of improvement, although it remains vulnerable to increasing international competition and rises in energy prices.
Following over five decades of impressive economic growth, Taiwan has risen to become a world leader in the production of electronics, and more specifically semi-conductors, which contributes to its standing as the world’s 17th largest exporter.


Taiwan has posted a current account surplus every year since the East Asian crisis in 1997 and in 2013 announced the largest on record. The country’s largest export sector is electronics and it is the world's largest supplier of contract computer chip manufacturing and a leading provider of LCD panels, DRAM computer memory, and consumer electronics design. The reliance on exports leaves the Taiwanese economy particularly sensitive to fluctuations in foreign exchange rates, particularly to an appreciation against the currencies of its major trading partners, namely the Chinese Yuan, Hong Kong Dollar, and US Dollar. China is Taiwan’s primary trading partner, and is responsible for around a third of exports. Over recent years, as relations between the two neighbours have improved, trade across the Taiwan Straits has increased.


Despite their cutting-edge technology and comparatively large R&D expenditure, the majority of the Taiwanese electronics firms supply low-cost, low-margin components to downstream firms such as Apple. This means they are vulnerable to direct competition from increasingly sophisticated mass-market manufacturers in China like the Shanghai-based Semiconductor Manufacturing International Corporation (SMIC), and from rivals in South Korea like Samsung who have successfully developed international brands capable of holding market share and increasing profit margins.


In common with its fellow Asia Tigers, Taiwan has a high population density and little in the way of natural resources. As a result, the country is heavily reliant on international markets in order to meet its energy needs. For example, it relies on imports to meet around 98% of its energy needs making the economy particularly sensitive to shocks in energy prices. Energy accounts for more than a quarter of all imports. Much of the historical price rises within the energy markets have been absorbed by two state-owned power companies, a situation that appears increasingly unsustainable. The situation has been further complicated following a post-Fukushima popular backlash against the use of nuclear power. Due in part to political interference from China, Taiwan, unlike its equally resource poor rival South Korea, has been unable to secure its energy needs through bi-lateral trade agreements, outside of its participation in the Asia Pacific Economic Cooperation (APEC) forum and World Trade Organization (WTO). As a result, energy is likely to remain a critical factor in the future economic performance of the country.


Indexkonstruktion

The MSCI Taiwan Index includes approximately 85% of the free-float adjusted market capitalisation of the Taiwanese equity market. Component stocks have to fulfil MSCI’s size, liquidity and free float criteria to be included in the index. Eligible securities are weighed by free-float adjusted market capitalisation, which serves to ensure that the underlying liquidity of the holdings is superior relative to a pure market capitalisation weighting. MSCI uses the official exchange closing prices to calculate the index’s value. The index is reviewed on a semi-annual basis with minor quarterly reviews to accurately reflect the evolving marketplace. As of this writing, the index has 104 components and is biased towards the information technology sector, representing almost two-thirds of its total weighting, followed by financials with 18% and materials with 10%. The index has a large single issuer exposure to the TSMC (Taiwan Semiconductor Manufacturing Company) (~23%) which is trailed by electronics giants Hon Hai Precision Industry (~8%) and Mediatek (~5%).


Fondskonstruktion

The iShares MSCI Taiwan UCITS ETF uses full physical replication to track the MSCI Taiwan Index. The fund aims to track the performance of the reference index by owning all the constituent shares in the same weights as those stipulated by the index. This fund uses futures for cash equitisation purposes, which helps to reduce tracking error. This accumulating ETF reinvests all dividends paid out by the underlying stocks directly into the fund. The fund does not currently engage in securities lending


Gebühren

The fund levies a total expense ratio (TER) of 0.74%. This lies at the upper end of the range of ETFs tracking Taiwanese equities. It should be remembered that there are additional, investor-specific costs associated with trading the ETF, such as bid/offer spreads and brokerage commissions, which should be factored into an investment decision. There are also rebalancing costs whenever the index changes composition.


Alternativen

As of this writing, there are five additional ETFs offering exposure to Taiwanese equities, with all but one tracking the MSCI Taiwan Index.


After the iShares MSCI Taiwan, the next most popular ETF tracking Taiwanese equities, as measured by assets under management (AUM), is the db x-trackers MSCI Taiwan TRN Index. This ETF physically replicates the same index as the iShares fund and levies a lower TER of 0.65%. In spite of the slightly different TER, both the iShares and db funds have produced similar annual tracking differences (fund return – index return) since 2011.


Investors seeking exposure to a different index may consider the TSEC Taiwan THEAM Easy UCITS ETF (TER 0.60%) which tracks the TSEC Taiwan 50 Index. This index --created by a joint venture between FTSE and the Taiwan Stock Exchange Corporation-- contains 50 of the most highly capitalised blue chip stocks and represents nearly 70% of the Taiwanese market.


Alternatively, Lyxor, ComStage and HSBC each provide ETFs tracking the MSCI Taiwan Index.

Über den Autor

Kenneth Lamont  ist Fondsanalyst bei Morningstar.