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Handful of Taiwan funds shine

The four actively-managed Taiwan equity funds have double-digit returns, but still do not beat the index.

Greater China investor attention is on the mainland and Hong Kong. However, the four actively-managed foreign funds focused purely on Taiwan equities have had double-digit returns.

All are positively correlated with each other, each with the heaviest weighting in Taiwan’s core sector – technology.

Year-to-date, the four have had 30% return or higher, but not one has beaten the FTSE Taiwan Index, which delivered 37.5%. A similar story shows over three- and five-year periods: the products have done well, but were all outperformed by the FTSE Taiwan Index (charts below).

Though the funds use different benchmarks, the Taiwan equity market is small and the FTSE Taiwan serves as a reasonable reference point.

Taiwan’s market has been vulnerable to trade tensions due to its tech sector, which has onshore manufacturing operations in China as part of the global supply chain. As a result, the local market has had wild swings.

Ronald Chan, chief investment officer for Asia ex-Japan equities at Manulife Investment Management, wrote in a client note he believes Asia trade will pick up in 2020, benefiting Taiwan.

“The de-escalation on the trade front has already provided green shoots in Asian economic activity such as the resilience in tech exports from Taiwan, demand surge in 5G and higher IT concentration in Asia manufacturing processes.

“In North Asia, continued substitution by Chinese technology firms due to uncertainty over United States supplier access, better-than expected orders for smartphone components, and an accelerated rollout of 5G-related products should continue to benefit the IT suppliers from Taiwan.”

Specifically for the tech sector, 2020 is looking better. The rollout of 5G smartphones worldwide is expected to provide a boost for Taiwan’s electronics manufacturers.

Government incentives to entice manufacturers in China to base operations in Taiwan are also expected to support the tech sector.


Taiwan funds three-year performance vs the Taiwan, China and Hong Kong indices

Source: FE Fundinfo. In US dollars.


Five-year performance

Source: FE Fundinfo. In US dollars.

Part of the Mark Allen Group.