Tech Ties Terrific for Taiwan ETF

ETF Trends

The benefits of the technology sector strength driven by mature, cash-rich firms are not confined to U.S. sector exchange traded funds.

Taiwanese equities are getting a major boost from investors flocking to mature tech names. In turn, global investors are also flocking to Taiwanese stocks. “Global money managers have pumped in $9.6 billion so far this year, more than three times the $2.7 billion total for all of 2013,” report Aries Poon and Fanny Lie for the Wall Street Journal.

Among Asian markets, only India has seen a great influx of cash from global investors than Taiwan. Over the past 90 days, the iShares MSCI Taiwan ETF (EWT) is up 11.6%, though that trails the performances over the same period by the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI Emerging Markets ETF (EEM) . [Taiwan ETF Looks Good Compared to Asian Rivals]

Taiwan is VWO’s second-largest country weight at 13.8% and the third-largest country allocation in EEM at 11.9%.

As the Journal notes, demand for new gadgets from tech giants such as Apple (AAPL) is boosting Taiwanese components makers, including Taiwan Semiconductor (TSM). Taiwan Semiconductor is EWT’s largest holding at a weight of 21.1%, nearly triple the ETF’s allocation to its second-largest holding, Hon Hai Precision Industry, also known as Foxconn.

Taiwan Semiconductor looming large in EWT underscores an important point about the ETF. Unlike many single-country emerging markets ETFs, EWT is not excessively weighted to energy, financial services or materials stocks. EWT does, however, feature an almost 58% weight to the tech sector. [Time for the Taiwan ETF]

While financials and materials combine for 27% of the fund’s weight, EWT remains one of the most docile plays among single-country emerging markets ETFs. The ETF has a beta of 0.55 and a three-year standard deviation of 16.4%, according to iShares data.

The comparable numbers on the iShares China Large-Cap ETF (FXI) are 1.1 and 23.7%.

Investors do not have to pay up to be involved with Taiwanese tech issues as those stocks trade “at around 14 times forward earnings, a common valuation measure, compared with about 16 times for U.S. equivalents,” according to the Journal.

EWT sports a distribution yield of 3.65%. Due a government tax on retained earnings introduced in the late 1990s, Taiwan has one of the more favorable dividend policies in the emerging world.

iShares MSCI Taiwan ETF

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Tom Lydon’s clients own shares of Apple and EEM.

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