Frank Ramsport
I generally prefer investing outside of the U.S., and in addition to broader diversification, international investing can deliver huge returns in the right environment.We all know U.S. stocks have been on fire for a while, which makes them vulnerable to weakness If any kind of global mean reversion occurs. I think one area of the world worth considering is Taiwan (despite concerns about China).If you agree, then iShares MSCI Taiwan ETF (NYSE: EWT)worth considering.
EWT is an exchange-traded fund (ETF) that tracks the investment results of the MSCI Taiwan 25/50 Index. The index consists of stocks traded primarily on the Taiwan Stock Exchange.When we look at the price ratio of EWT to the SPDR® S&P 500 ETF Trust (SPY), it beats them all This trend will remain declining until 2022, but may stabilize and reverse soon.
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EWT Top Holdings
EWT’s top 10 holdings account for more than 42% of the fund. The vast majority of positions have weights below 2%. Companies include:
- Taiwan Semiconductor Manufacturing Company (TSM): Commonly known as TSMC, it is the world’s largest dedicated independent (pure-play) semiconductor foundry, headquartered in Taiwan.
- MediaTek Co., Ltd. (Taiwan Stock Exchange Code: 2454): MediaTek is a global fabless semiconductor company that powers nearly 2 billion connected devices every year.
- Hon Hai Precision Industry Co., Ltd. (OTCPK:HNHAF): Hon Hai, known as Foxconn, is a major electronics manufacturer.
- United Microelectronics (UMC): UMC is a global semiconductor foundry providing advanced technology and manufacturing services for applications.
- China Iron and Steel Corporation (OTC: CISEF): As the name suggests, Sinosteel Group is a well-known enterprise in the steel industry.
On the surface, this looks pretty diversified, but keep in mind that TSMC makes up more than 22% of the fund. That’s not necessarily a bad thing, as TSMC is in great shape in 2024, clearly benefiting from the AI boom and Nvidia’s success. Still, if you want a fund with such high exposure to a single stock like this, it’s worth considering.
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Industry composition and weight
EWT’s industry composition and weightings are diverse. The top three industries include:
- Information Technology: This industry accounts for a large proportion of EWT, with a large portion of the fund investing in technology companies such as TSMC and MediaTek. It makes up 64% of the fund.
- finance: The financial sector is also a noteworthy part of EWT’s portfolio, accounting for 17.34%
- Material: The materials industry, including companies such as China Steel Corporation, also accounts for a sizeable portion of EWT’s holdings, with a shareholding ratio of 4.91%
Comparison with peer ETFs
The only other real comparison for EWT is the Franklin FTSE Taiwan ETF (FLTW). The two companies’ holdings look largely similar (Taiwan Semiconductor is top of FLTW with a 24% stake). EWT has a fee of 0.59%, while FLTW has a lower fee of 0.19%. FLTW has outperformed the broader market by about 800 basis points so far in 2021, primarily due to differences in index composition when it tracks the FTSE Taiwan Capped Index. Overall, they both provide good exposure. Yes, FLTW performs better and has lower fees, but EWT definitely has higher trading volume, which may be important to some investors.
Pros and cons of investing in EWT
Investing in EWT has its own unique advantages and disadvantages.
advantage:
- Influenced by Taiwan’s economy: Taiwan’s booming economy and its prominence in the technology sector make EWT an attractive option for investors seeking international diversification.
- diversification: EWT provides diversified investments in the Taiwan market across different industries.
shortcoming:
- currency risk: Because the Fund invests in foreign stocks, it is subject to currency risk. Any large fluctuations in the New Taiwan Dollar will affect the Fund’s returns.
- geopolitical risks: Geopolitical tensions between Taiwan and China could impact the fund’s performance.
in conclusion
For investors seeking international diversification, especially those focused on Taiwan’s economy, investing in the iShares MSCI Taiwan ETF may be a strategic move. However, it is important to consider the risks associated with the iShares MSCI Taiwan ETF, including currency and geopolitical risks. The fund’s heavy reliance on the technology sector could also be a potential risk factor. If China invades, all bets are off. However, I think EWT is a good fund worth considering.
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