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Tech Ties Terrific for Taiwan ETF


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


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